FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
For the month of August, 2005
HSBC Holdings plc
42nd Floor, 8 Canada
Square, London E14 5HQ, England
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F).
Form 20-F X Form 40-F ......
(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934).
Yes....... No X
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82- ..............)
HANG SENG BANK LIMITED
2005 INTERIM RESULTS - HIGHLIGHTS
- Total operating income up 8.9 per cent to HK$10,499 million (HK$9,645
million for the first half of 2004).
- Operating profit before loan impairment (charges)/releases and other
credit risk allowances down 2.2 per cent to HK$5,934 million (HK$6,070
million for the first half of 2004).
- Attributable profit down 2.3 per cent to HK$6,045 million (HK$6,188
million for the first half of 2004).
- Return on average shareholders' funds of 29.7 per cent (32.0 per cent for
the first half of 2004).
- Total assets up 4.2 per cent to HK$569.7 billion (HK$547.0 billion at 31
December 2004).
- Earnings per share down 2.5 per cent to HK$3.16 (HK$3.24 per share for
the first half of 2004).
- Second interim dividend of HK$1.10 per share; total dividends of HK$2.20
per share for the first half of 2005 (HK$2.20 per share for the first half
of 2004).
- Total capital ratio of 12.4 per cent (12.0 per cent at 31 December 2004);
tier 1 capital ratio of 10.5 per cent (10.8 per cent at 31 December 2004).
- Cost:income ratio of 26.7 per cent (24.6 per cent for the first half of
2004).
Note: Certain figures have been restated to reflect the adoption of a number of
new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting
Standards (new HKFRSs'), details of which are set out in note 1 of the
additional information on page 61.
Results Summary
Hang Seng Bank Limited (the bank) and its subsidiaries and associated companies
(the group) reported an unaudited profit attributable to shareholders of
HK$6,045 million for the first half of 2005, representing a decline of 2.3 per
cent compared with the first half of 2004 which benefited from a release of
HK$698 million in general provisions. Attributable profit increased by 16.8 per
cent compared with the second half of 2004.
The adoption of a number of new and revised Hong Kong Financial Reporting
Standards and Hong Kong Accounting Standards ('HKFRSs') from 1 January 2005
required changes in accounting policies as described in detail on page 61.
The resulting changes in accounting treatment and presentation of various profit
and loss and balance sheet items may render certain comparative figures not
strictly comparable.
Total operating income rose by HK$854 million, or 8.9 per cent, over the first
half of 2004 to HK$10,499 million, underpinned by the strong growth of 18.2 per
cent in income from Personal Financial Services and improved net interest
margin. Compared with the second half of 2004, there was an increase of HK$251
million, or 2.4 per cent.
Net interest income rose by HK$549 million, or 11.6 per cent, compared with the
same period last year. The rise was attributable to improved interest spreads on
deposits, growth in commercial banking and consumer lending portfolios, an
increased contribution from net free funds and the inclusion of interest income
from life insurance fund investments. These outweighed the compression of
interest spreads on treasury investment and money market portfolios, which were
affected negatively by the rise in interest costs and the flattening of the
yield curves, and further falls in mortgage portfolio yields. Compared with the
second half of 2004, net interest income rose by HK$284 million, or 5.7 per
cent. Net interest margin improved to 2.13 per cent, 11 basis points and 6 basis
points higher than the first and second halves of 2004 respectively.
Net fee income fell by HK$295 million, or 16.2 per cent, compared with the same
period last year, affected by exceptionally high capital guaranteed fund sales
in the first quarter of 2004, and a change in accounting treatment of credit
facilities fees as interest income instead of fee income with effect from 1
January 2005. These were partially offset by the growth in income from sales of
structured investment products and private banking related investment and
advisory service fees and commissions. Card services fees, insurance agency
commissions and import and export commissions also recorded encouraging growth.
Compared with the second half of 2004, net fee income rose by HK$34 million, or
2.3 per cent.
Trading income fell by HK$125 million, or 22.4 per cent, compared with the first
half of 2004. Foreign exchange income fell by HK$253 million, mainly due to the
decline in customer trade volume, and a loss incurred on foreign exchange
contracts used for hedging on-balance sheet positions. Income from derivatives
trading rose by HK$136 million, mainly attributable to increased sales of
structured investment products to commercial and personal customers. Compared
with the second half of 2004, trading income fell by HK$33 million, or 7.1 per
cent.
Net earned insurance premiums rose by HK$730 million, or 36.5 per cent, over the
first half of 2004. Premiums earned from policy renewal increased substantially
as the portfolio of in-force policies continued to grow. Annualised premiums and
net premiums earned on new policies also reported satisfactory growth. Compared
with the second half of 2004, there was a rise of HK$254 million, or 10.3 per
cent.
Net insurance claims incurred and movement in policyholder liabilities increased
by HK$815 million, or 51.1 per cent, compared with the first half of 2004,
reflecting mainly the growth in liabilities to policyholders of long-term life
insurance business. This was in line with the increase in long-term insurance
policies in-force. Claims for general insurance business remained stable.
Other operating income rose by HK$39 million, or 9.2 per cent, over the first
half of 2004, mainly attributable to the growth in embedded value of long-term
insurance contracts.
Wealth management business related income (as detailed on page 21) fell by HK$54
million, or 3.0 per cent, compared with the first half of 2004. Investment
services related income recorded a fall of HK$142 million, or 11.9 per cent. In
a rising interest rate environment, the focus of the bank's investment services
shifted from capital guaranteed funds to yield enhancement structured
instruments. Private banking business recorded encouraging growth in both
customers and funds under management. Insurance agency and underwriting income,
including embedded value of long-term life contracts, increased by HK$88
million, or 14.3 per cent, following the successful launch of new insurance
plans with cumulative life protection and wealth benefits. Compared with the
second half of 2004, wealth management business related income rose by HK$137
million, or 8.4 per cent, attributable to the growth of 13.7 per cent and 1.4
per cent in investment services related income and insurance income
respectively.
Net operating income before loan impairment charges and other credit risk
allowances rose 0.5 per cent over the first half of 2004 and was 1.1 per cent
above the second half of 2004.
Loan impairment charges amounted to HK$302 million, compared with net releases
in loan loss allowance of HK$746 million for the first half of 2004 and HK$31
million for the second half of 2004. The overall loan impairment charges on
individually assessed loans amounted to HK$95 million, compared with a net
release of HK$144 million in the first half of 2004. New loan impairment charges
on certain commercial banking accounts were partly offset by net releases from
mortgages and personal loans. Charges on small homogeneous loans collectively
assessed on a portfolio basis amounted to HK$55 million, compared with HK$96
million for the first half of 2004, reflecting further improvement in credit
card charge-offs in the generally stronger economic conditions. Collective
assessment of loans determined not to be individually impaired resulted in a
charge of HK$152 million, following an update of the historical loss rate to
cover the economic cycle. This compared with releases in general provisions of
HK$698 million and HK$114 million for the first and second halves of 2004
respectively.
Operating expenses rose by HK$175 million, or 8.8 per cent, compared with the
same period last year, attributable largely to the rise in personnel expenses.
Average headcount increased by 193, mainly due to recruitment for Personal
Financial Services business and the expansion of the Mainland network. Marketing
expenses to promote cards and insurance products also increased. Compared with
the second half of 2004, operating expenses fell by HK$95 million, or 4.2 per
cent, mainly due to lower marketing expenditure and personnel expenses.
Operating profit before loan impairment (charges)/releases and other credit risk
allowances was down by HK$136 million, or 2.2 per cent, compared with the first
half of 2004 but was up by HK$183 million, or 3.2 per cent, over the second half
of 2004, due to higher net interest income and lower operating expenses.
Operating profit fell by HK$1,184 million, or 17.4 per cent, compared with the
first half of 2004 and was lower by HK$150 million, or 2.6 per cent, compared
with the second half of 2004.
Profit before tax amounted to HK$7,062 million, which was HK$198 million, or 2.7
per cent, lower than the same period last year after accounting for the
following items: (1) profit on disposal of fixed assets and long-term
investments of HK$348 million, which was maintained at the same level as the
first half of 2004; (2) surplus on property revaluation, which amounted to
HK$877 million, and included two components: (i) reversal of revaluation losses
of bank premises previously charged to profit and loss account of HK$148 million
(HK$91 million for the same period last year); and (ii) revaluation gain on
investment properties of HK$729 million, recognised through the profit and loss
account following the change in accounting policy on 1 January 2005 and (3)
share of profits in associated companies (net of taxation), which grew
substantially to HK$205 million, and was mainly contributed by Industrial Bank
Co., Ltd. Compared with the second half of 2004, profit before tax was up by
HK$1,039 million, or 17.3 per cent.
Attributable profit, after taxation and minority interests, fell by HK$143
million, or 2.3 per cent, compared with the same period last year but was up by
HK$869 million, or 16.8 per cent, compared with the second half of 2004.
Total assets grew by HK$22.7 billion, or 4.2 per cent, to HK$569.7 billion at 30
June 2005. Advances to customers recorded encouraging growth of 3.6 per cent,
mainly in residential mortgages, trade finance and corporate lending. Customer
deposits, including certificates of deposit, including those reported under
trading liabilities, fell by 1.0 per cent.
Shareholders' funds (excluding proposed dividends) rose by HK$2,106 million, or
5.6 per cent to HK$39,397 million at 30 June 2005, mainly attributable to the
increase in retained profits and the premises revaluation reserves, reflecting
the rise in the property market.
The return on average total assets was 2.2 per cent (2.5 per cent in the first
half of 2004 and 2.0 per cent in the second half of 2004). The return on average
shareholders' funds was 29.7 per cent, compared with 32.0 per cent and 25.2 per
cent in the first and second halves of 2004 respectively.
The advances to deposits ratio rose to 56.8 per cent at 30 June 2005 compared
with 54.3 per cent at 31 December 2004, the result of a growth of 3.6 per cent
in customer advances and a fall of 1.0 per cent in customer deposits during the
first half of 2005. The group continued to maintain a strong liquidity position,
with an average liquidity ratio in the first half of 2005 (calculated in
accordance with the Fourth Schedule of the Hong Kong Banking Ordinance) of 43.6
per cent (48.1 per cent in the first half of 2004 and 46.3 per cent in the
second half of 2004).
The total capital ratio at 30 June 2005 was 12.4 per cent (12.8 per cent at
30 June 2004 and 12.0 per cent at 31 December 2004) and the tier 1 capital ratio
was 10.5 per cent (11.6 per cent at 30 June 2004 and 10.8 per cent at 31
December 2004).
The cost:income ratio, calculated as total operating expenses to net operating
income before loan impairment (charges)/releases and other credit risk
allowances was 26.7 per cent, higher than the first half of 2004 by 2.1
percentage points but lower by 1.4 percentage points compared with the second
half of 2004.
The Directors have declared a second interim dividend of HK$1.10 per share,
which will be payable on 01 September 2005 to shareholders on the Register of
Shareholders as of 24 August 2005. Together with the first interim dividends of
HK$1.10 per share, the total distribution for the first half of 2005 will amount
to HK$2.20 per share, the same as that in the first half of 2004.
Comment by Michael Smith, Chairman
"In the first half of 2005, Hang Seng's total operating income reached HK$10,499
million, an increase of 8.9 per cent over the same period in 2004. This was
achieved against a backdrop of an increasingly competitive environment.
"Profit attributable to shareholders was HK$6,045 million, representing a fall
of 2.3 per cent compared with the first half of last year which benefited from a
large release in general provisions.
"Net interest income rose by 11.6 per cent to HK$5,264 million. This rise was
due largely to improved interest spread on deposits, growth in commercial
banking and consumer lending portfolios, and contributions from net free funds.
Our net interest margin improved by 11 basis points to 2.13 per cent.
"We also enjoyed solid growth in Personal Financial Services with pre-tax profit
of HK$3,970 million, up 12.8 per cent.
"We have continued to invest in the growth of our businesses. Marketing expenses
increased to promote cards and insurance products. There were also increases in
average headcount, mainly due to recruitment for Personal Financial Services
business and the expansion of our mainland network.
"Our strategy for developing our mainland China business is yielding positive
results, with the first half of 2005 recording an increase in our share of
profits from Industrial Bank Co., Ltd. Along with our own growing network of
mainland outlets, we are well positioned to capitalise on growth opportunities
created by the ongoing financial liberalisation on the Mainland.
"With the rate of economic growth in the second half of 2005 expected to be more
moderate, the competitive banking environment is set to continue. However, our
overall outlook for the year remains positive. The improvement in employment,
coupled with the wealth effects resulting from the sustained economic recovery,
will help ensure that domestic demand maintains momentum. The recent interest
rate rises should continue to have a positive impact on the interest margin,
although further rises may dampen loan demand.
"Hang Seng will continue to focus on diversifying income through expanding our
wealth management, consumer finance and SME services, improving productivity and
exploring business opportunities on the Mainland. This strategy will enable us
to strengthen our profitability and continue to deliver value to our
shareholders."
Contents
The financial information in this news release is based on the unaudited
consolidated accounts of Hang Seng Bank Limited and its subsidiary and
associated companies for the six months ended 30 June 2005.
- Highlights of Results and Chairman's Comment
- Contents
- Consolidated Profit and Loss Account (Unaudited)
- Consolidated Balance Sheet (Unaudited)
- Consolidated Statement of Changes in Equity (Unaudited)
- Economic Profit (Unaudited)
- Consolidated Cash Flow Statement (Unaudited)
- Financial Review
- Net interest income
- Net fee income
- Trading income
- Net income from financial instruments designated as at fair value
- Analysis of income from wealth management business
- Loan impairment (charges)/releases and other credit risk allowances
- Operating expenses
- Profit on disposal of tangible fixed assets and financial investments
- Tax expenses
- Earnings per share
- Dividends per share
- Segmental analysis
- Analysis of financial assets and liabilities by accounting treatment
- Analysis of assets and liabilities by remaining maturity
- Cash and short-term funds
- Trading securities
- Financial assets designated as at fair value through profit or loss
- Advances to customers
- Loans impairment allowances against advances to customers
- Impaired loans to customers and allowances
- Overdue advances to customers
- Rescheduled advances to customers
- Segmental analysis of advances to customers by geographical area
- Gross advances to customers by industry sector
- Financial investments
- Analysis of securities by counterparty and place of listing
- Amount due from/to immediate holding company and fellow subsidiary
companies
- Investments in associated companies
- Intangible assets
- Other assets
- Current, savings and other deposit accounts
- Certificates of deposit and other debt securities in issue
- Trading liabilities
- Other liabilities
- Subordinated liabilities
- Shareholders' funds
- Capital resources management
- Liquidity ratio
- Reconciliation of cash flow statement
- Contingent liabilities, commitments and derivatives
- Cross-border claims
- Accounting policies
- Restatement of profit and loss accounts and balance sheets
- Comparative figures
- Property revaluation
- Market risk
- Foreign currency positions
- Material related-party transactions
- Statutory accounts
- Ultimate holding company
- Statement of compliance
- Register of shareholders
- Proposed timetable for the remaining quarterly dividends for 2005
- News release
Appendices 1 - 5
Consolidated Profit and Loss Account (Unaudited)
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
Figures in HK$m restated restated
Interest income 7,900 5,875 6,597
Interest expenses (2,636) (1,160) (1,617)
Net interest income 5,264 4,715 4,980
Fee income 1,741 1,974 1,755
Fee expense (215) (153) (263)
Net fee income 1,526 1,821 1,492
Trading income 433 558 466
Net income from
financial instruments
designated as at fair
value 50 - -
Net investment income
on assets backing
policyholder liabilities - 83 346
Dividend income 37 48 27
Net earned insurance
premiums 2,728 1,998 2,474
Other operating income 461 422 463
Total operating income 10,499 9,645 10,248
Net insurance claims
incurred and movement
in policyholder
liabilities (2,409) (1,594) (2,246)
Net operating income
before loan impairment
(charges)/releases and
other credit risk
allowances 8,090 8,051 8,002
Loan impairment (charges)/
releases and other credit
risk allowances (302) 746 31
Net operating income 7,788 8,797 8,033
Personnel expenses (1,125) (1,056) (1,178)
General and administrative
expenses (892) (795) (939)
Depreciation of business
premises and equipment (135) (126) (130)
Amortisation of intangible
assets (4) (4) (4)
Total operating expenses (2,156) (1,981) (2,251)
Operating profit 5,632 6,816 5,782
Profit on disposal of
tangible fixed assets
and financial investments 348 349 93
Net surplus on property
revaluation 877 91 55
Share of profits in
associated companies 205 4 93
Profit before tax 7,062 7,260 6,023
Tax expenses (924) (992) (719)
Profit for the period 6,138 6,268 5,304
Profit attributable to
minority interests (93) (80) (128)
Profit attributable to
shareholders 6,045 6,188 5,176
Figures in HK$
Earnings per share 3.16 3.24 2.71
Dividends per share 2.20 2.20 3.00
Consolidated Balance Sheet (Unaudited)
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Assets
Cash and short-term funds 50,966 62,213 64,845
Placings with banks maturing
after one month 22,832 5,319 17,482
Trading securities 13,812 3,953 6,000
Financial assets designated as at
fair value through profit or loss 3,743 - -
Derivatives financial instruments 1,552 1,209 1,684
Advances to customers 260,512 246,394 251,553
Financial investments 192,951 162,118 182,938
Investments in associated
companies 2,449 2,103 2,299
Intangible assets 1,426 1,146 1,266
Premises and equipment 6,559 5,277 5,558
Investment properties 3,913 3,260 3,383
Other assets 9,004 9,566 9,980
569,719 502,558 546,988
Liabilities
Current, savings and other
deposit accounts 430,395 418,638 447,460
Deposits from banks 34,753 13,118 11,934
Trading liabilities 24,358 2,657 5,840
Financial liabilities designated
as at fair value through profit
or loss 995 - -
Derivatives financial instruments 1,857 961 1,273
Certificates of deposit and other
debt securities in issue 11,158 9,807 16,055
Liabilities to customers under
investment contracts 542 - -
Other liabilities 7,866 15,195 20,982
Liabilities to customers under
insurance contracts 11,558 - -
Deferred tax and current tax
liabilities 2,310 2,116 1,668
Subordinated liabilities 1,496 - -
527,288 462,492 505,212
Capital resources
Minority interests 931 724 852
Share capital 9,559 9,559 9,559
Reserves 29,838 27,680 27,732
Proposed dividends 2,103 2,103 3,633
Shareholders' funds 41,500 39,342 40,924
42,431 40,066 41,776
569,719 502,558 546,988
Figures in HK$
Net asset value per share 22.19 20.96 21.85
Consolidated Statement of Changes in Equity (Unaudited)
Attributable to shareholders Minority Total
Share Other Retained Total interests equity
Figures in HK$m capital reserves profits restated
Balance at 01Jan05
- as above 9,559 3,878 27,487 40,924 852 41,776
- opening adjustment
for the adoption of
HKAS 39 and IFRS 4 - 535 535 1,070 (14) 1,056
- as restated 9,559 4,413 28,022 41,994 838 42,832
Premises revaluation
reserve, net of tax 609 26 635 635
- unrealised surplus on
revaluation 635 - 635 635
- depreciation charge on
revaluation (26) 26 - -
Available-for-sale investments,
net of tax (1,165) (1,165) (1,165)
- valuation losses taken
to equity (842) (842) (842)
- transferred to profit or
loss on disposal (323) (323) (323)
Cash flow hedges, net of tax (265) (265) (265)
- valuation losses taken
to equity (265) (265) (265)
Exchange and other adjustments (4) (23) (27) (27)
Actuarial loss on defined
benefit plan - (9) (9) (9)
Share option reserve 28 - 28 28
Profit for the period - 6,045 6,045 93 6,138
Dividends declared or approved
during the period - (5,736) (5,736) - (5,736)
Balance at 30Jun05 9,559 3,616 28,325 41,500 931 42,431
Balance at 01Jul04
as above 9,559 3,387 26,396 39,342 724 40,066
Premises revaluation
reserve, net of tax 163 321 484 484
- unrealised surplus
on revaluation 220 257 477 477
- transfer of investment
properties reserve
from premises reserve (32) 32 - -
- depreciation charge on
revaluation (25) 25 - -
- realisation of revaluation
surplus on disposal
of premises - 7 7 7
Long-term equity investment
revaluation reserve,
net of tax 300 300 300
- valuation gains taken to
equity 389 389 389
- transferred to profit or
loss on disposal (89) (89) (89)
Exchange and other adjustments - 10 10 10
Actuarial loss on defined
benefit plan - (210) (210) (210)
Share option reserve 28 28 28
Profit for the period - 5,176 5,176 128 5,304
Dividends declared or
approved during the
period - (4,206) (4,206) - (4,206)
Balance at 31Dec04 9,559 3,878 27,487 40,924 852 41,776
Balance at 01Jan04
- as previously
reported 9,559 6,921 23,161 39,641 644 40,285
- arising on change
in accounting
policies - (3,679) 2,255 (1,424) - (1,424)
- as restated 9,559 3,242 25,416 38,217 644 38,861
Premises revaluation
reserve, net of tax 501 390 891 891
- unrealised surplus
on revaluation 492 380 872 872
- transfer of investment
properties reserve to
premises reserve 32 (32) - -
- depreciation charge on
revaluation (21) 21 - -
- realisation of revaluation
surplus on disposal of
premises (2) 21 19 19
Long-term equity investment
revaluation reserve,
net of tax (374) (374) (374)
- valuation losses taken
to equity (57) (57) (57)
- transferred to profit
or loss on disposal (317) (317) (317)
Exchange and other adjustments - (6) (6) (6)
Actuarial loss on defined
benefit plan - (48) (48) (48)
Share option reserve 18 - 18 18
Profit for the period - 6,188 6,188 80 6,268
Dividends declared or approved
during the period - (5,544) (5,544) - (5,544)
Balance at 30Jun04 9,559 3,387 26,396 39,342 724 40,066
Economic Profit (Unaudited)
Economic profit is calculated from post-tax profit, adjusted for surpluses/
deficits on properties revaluation and depreciation attributable to revaluation
surpluses, and takes into account the cost of capital invested by the bank's
shareholders. For the first half of 2005, economic profit was HK$3,268 million,
a decrease of HK$973 million, or 22.9 per cent, over the same period last year.
Post-tax profit, adjusted for surpluses on properties revaluation net of
deferred tax (HK$724 million) and depreciation attributable to revaluation
surpluses (HK$26 million), fell by HK$804 million, due to a large release in
general provisions in the same period last year. Cost of capital rose by HK$169
million, in line with the growth in invested capital with the accumulation of
retained profits. The analysis indicates that the bank continues to create value
for its shareholders.
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
restated restated
HK$m % HK$m % HK$m %
Average
invested
capital 35,708 33,272 34,825
Return on
invested
capital^ 5,340 30.1 6,144 37.1 5,182 29.6
Cost of
capital (2,072) (11.7) (1,903) (11.5) (2,038) (11.6)
Economic
profit 3,268 18.4 4,241 25.6 3,144 18.0
^Return on invested capital is based on post-tax profit excluding surpluses/
deficits on properties revaluation and depreciation attributable to revaluation
surpluses.
Consolidated Cash Flow Statement (Unaudited)
Half-year ended Half-year ended
30Jun05 30Jun04
Figures in HK$m restated
Net cash inflow from
operating activities 10,716 826
Cash flows from investing
activities
Purchase of an interest
in an associated company - (1,634)
Dividends received from
associated companies 55 4
Purchase of available-for-sale
investments (37,944) (30,345)
Proceeds from sale or
redemption of available-
for-sale investments 11,844 21,455
Purchase of fixed assets (97) (58)
Proceeds from sale of
fixed assets 94 141
Interest received from
available-for-sale
investments 2,190 1,395
Dividends received from
available-for-sale
investments 35 76
Net cash outflow from
investing activities (23,823) (8,966)
Cash flows from financing
activities
Dividends paid (5,736) (5,544)
Issuance of subordinated debts,
including financial liabilities
designated as at fair value 2,492 -
Net cash outflow from financing
activities (3,244) (5,544)
Decrease in cash and cash
equivalents (16,351) (13,684)
Cash and cash equivalents at
beginning of period 67,051 77,575
Effect of foreign exchange rate
changes (235) (371)
Cash and cash equivalents at
end of period 50,465 63,520
Financial Review
Net interest income
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
Figures in HK$m restated restated
Net interest income^ 5,264 4,715 4,980
Average interest-earning
assets 497,987 470,141 478,253
Net interest spread 1.99% 1.95% 1.99%
Net interest margin 2.13% 2.02% 2.07%
^Included within net interest income was HK$9 million with respect of interest
income accrued on impaired loans and advances.
Net interest income increased by HK$549 million, or 11.6 per cent, compared with
the first half of 2004, with an increase of HK$27.8 billion, or 5.9 per cent in
average interest-earning assets. Net interest margin improved by 11 basis points
to 2.13 per cent with an increase in net interest spread of 4 basis points to
1.99 per cent. Contribution from net free funds rose by 7 basis points to 0.14
per cent benefiting from the rise in market interest rates.
Deposits spreads benefited as local market interest rates moved up in the second
quarter, after a prolonged period of exceptionally low levels. Net interest
margin also benefited from the growth in customer advances, particularly, higher
yielding card, personal and SME loans and the inclusion of interest income from
the held-to-maturity debt portfolio of life insurance funds.
Treasury securities investment and money market portfolios were negatively
affected by the rise in funding costs and the flattening of the yield curves.
The mortgage portfolio yields continued to fall amidst intense market
competition, although the downward pricing trend started to reverse in the
second quarter.
The impact of individual factors on net interest income and net interest margin
is analysed below:
HK$m Basis points
Net interest Net interest
income margin
Narrowing of spread on treasury
securities and money market
portfolios (148) (6)
Fall in mortgage portfolio yields (123) (5)
Improvement in deposits spreads 173 7
Contribution from net free funds 173 7
Interest income from insurance fund
assets 198 8
Growth in average interest-earning
assets 276 -
549 11
The average yield on the residential mortgage portfolio, excluding GHOS
mortgages and staff loans, fell to 223 basis points below BLR for the first half
of 2005, before accounting for the effect of cash incentive payments. This
compared with 192 basis points and 211 basis points below BLR in the first and
second halves of 2004 respectively. Following adoption of the new accounting
policies on 1 January 2005, mortgage incentive payments are taken into account
for calculation of effective interest rate and recognised over the expected life
of a mortgage loan together with mortgage interest income. During the first half
of 2005, cash incentive paid amounted to HK$94 million. That part of mortgage
incentive payment (including the unamortised amount carried forward from
previous years) recognised in accordance with the new accounting policy in the
first half of 2005 was HK$55 million. In the first and second halves of 2004,
incentive payments written off against interest income amounted to HK$80 million
and HK$77 million respectively.
Compared with the second half of 2004, net interest income improved by HK$284
million, or 5.7 per cent, with a 6 basis points increase in net interest margin
to 2.13 per cent. Net interest spread remained the same as the second half of
2004 while contribution from net free funds rose by 6 basis points to 0.14 per
cent. Improvement in deposits spreads, growth in average customer advances and
the inclusion of interest income from the held-to-maturity portfolios of life
insurance funds, contributed favourably to net interest spread. Negative factors
included the narrowing in treasury portfolio spread, the fall in mortgage
portfolio yields and the recovery of suspended interest on upgrading of large
doubtful accounts in the second half of 2004.
The impact of individual factors on net interest income and net interest margin
is analysed below:
HK$m Basis points
Net interest Net interest
income margin
Narrowing of spread on treasury
securities and money market
portfolios (198) (8)
Recovery of suspended interest (74) (3)
Fall in mortgage portfolio yields (49) (2)
Improvement in deposits spreads 123 5
Contribution from net free funds 148 6
Interest income from insurance fund
assets 198 8
Growth in average interest-earning
assets 136 -
284 6
On adoption of HKAS 39, interest income and expenses of financial instruments
for trading and designated as at fair value through profit or loss for the first
half of 2005, are reported as trading income and net income from financial
instruments designated as at fair value respectively with effect from 01 January
2005. Whereas net interest income from the held-to-maturity debt securities of
insurance funds were reported as net investment income on assets backing
policyholder liabilities in the first and second halves of 2004. The following
table shows the total net interest income from all sources for the three
half-year periods:
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
Figures in HK$m restated restated
Net interest income
per profit and
loss account 5,264 4,715 4,980
Interest income less
expenses from:
- trading financial
instruments 44 - -
- fair value financial
instruments 24 - -
- assets backing
policyholder liabilities - 124 186
Total net interest
income 5,332 4,839 5,166
Net fee income
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
Figures in HK$m restated restated
- securities/
stockbroking 233 295 265
- retail investment
products and
funds under
management 670 869 630
- insurance 77 51 50
- account services 110 108 106
- remittance 67 60 65
- cards 334 283 315
- credit facilities 41 123 117
- import/export 139 118 138
- other 70 67 69
Fee income 1,741 1,974 1,755
Fee expense (215) (153) (263)
Net fee income 1,526 1,821 1,492
Net fee income fell by HK$295 million, or 16.2 per cent, compared with the first
half of 2004. Income from stockbroking and securities related income fell by
HK$62 million, or 21.0 per cent. Income from retail investment products and
funds under management was lower by HK$199 million, or 22.9 per cent, as
compared to the exceptionally high capital guaranteed fund sales in the first
quarter of 2004, although this was partly offset by the strong sales of
structured investment products and the growth in private banking business in the
first half of 2005. Credit facilities income fell by HK$82 million as all
corporate loan origination fees are now reported as part of interest income
under the new accounting policies that came into effect on 1 January 2005. Card
services income rose by 18.0 per cent, underpinned by 20.6 per cent growth in
card spending. Insurance agency commissions and trade finance also recorded
encouraging growth, reflecting the business growth of the Commercial Banking
Customer Group.
Compared with the second half of 2004, net fee income rose by HK$34 million, or
2.3 per cent, mainly contributed by growth in card services fees and insurance
agency commission.
Trading income
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
Figures in HK$m restated restated
Net interest income 44 - -
Dealing profits:
- foreign exchange 277 530 445
- securities,
derivatives and
other trading
activities 112 28 21
389 558 466
433 558 466
Trading income fell by HK$125 million, or 22.4 per cent (a fall of HK$169
million, or 30.3 per cent, excluding interest income and expenses from trading
financial instruments), compared with the first half of 2004. This was mainly
due to the HK$253 million fall in foreign exchange income which included the
revaluation loss of HK$147 million of foreign exchange contracts used for
hedging on-balance sheet positions.
Income from securities, derivatives and other trading activities rose by HK$84
million, mainly due to the rise in profit from derivatives of HK$136 million,
attributable mainly to the packaging of structured investment products for
commercial and personal customers.
Compared with the second half of 2004, trading income fell by HK$33 million, or
7.1 per cent (a fall of HK$77 million, or 16.5 per cent, excluding interest
income and expenses).
Net income from financial instruments designated as at fair value
Net income from financial instruments as at fair value through profit or loss
amounted to HK$50 million, including net interest income and expenses,
investment income, and revolution gains and losses. Financial assets,
liabilities and derivatives are designated as at fair value through profit and
loss mainly to achieve economic hedge of market risks and are not for short-term
trading. Certain long-term insurance fund assets are also designated as at fair
value through profit and loss to meet policyholders' liabilities. Before the
change in accounting policies effective 1 January 2005, these income were
reported under their respective income categories.
Analysis of income from wealth management businesses
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
Figures in HK$m restated restated
Investment income:
- retail investment
products and funds
under management ^ 789 869 630
- securities/stockbroking 233 295 265
- margin trading 33 33 33
1,055 1,197 928
Insurance income:
- life insurance
- underwriting including
embedded value 334 387 236
- life investment income ^^ 209 79 339
- general insurance and others 161 150 119
704 616 694
Total 1,759 1,813 1,622
^ Income from retail investment products and funds under management included
those which were reported under fees and commissions including the sale of unit
trust funds, third party investment products and private banking business. This
also included profit on issue of structured investment products, reported under
trading income.
^^ Investment income from insurance funds included those reported as net
interest income, trading income, net income from financial instruments
designated as at fair value and net investment income on assets backing
policyholder liabilities.
Wealth management business related income fell slightly by HK$54 million, or 3.0
per cent, compared with the first half of 2004. Investment income fell by HK$142
million, or 11.9 per cent. In a rising interest rate environment, the focus of
the bank's investment services shifted from capital guaranteed funds to yield
enhancement structured instruments. The bank continued to widen its investment
products range to facilitate customers in capturing market opportunities.
Private banking business recorded encouraging growth in both customers and
asset management portfolios.
Total funds under management, including discretionary and advisory, grew by 10.6
per cent to HK$99.4 billion during the first half of 2005.
Insurance agency and underwriting income, including embedded value of long-term
life contracts, increased by HK$88 million, or 14.3 per cent, following the
successful launch of new insurance plans such as 'Three-year Express Wealth' and
'Five-year Excel' with cumulative life protection and wealth benefits.
Compared with the second half of 2004, wealth management business related income
rose by HK$137 million, or 8.4 per cent, attributable to the growth of 13.7 per
cent and 1.4 per cent in investment services related income and insurance income
respectively.
Loan impairment(charges)/releases and other credit risk allowances
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
Figures in HK$m restated restated
Loan impairment(charges)/
releases
- individually assessed (95) 144 (3)
- collectively assessed
- portfolios basis (55) (96) (80)
- individually unimpaired loans (152) 698 114
(302) 746 31
Of which:
- new and additional (666) (241) (222)
- releases 314 932 199
- recoveries 50 55 54
(302) 746 31
Loan impairment charges amounted to HK$302 million, compared with net releases
in loan impairment of HK$746 million for the first half of 2004 and HK$31
million for the second half of 2004. The overall loan impairment charges on
individually assessed loans amounted to HK$95 million, with new loan impairment
charges on certain commercial banking accounts offset by a net release from
mortgages and personal loans. This compared with a net release of HK$144 million
in the first half of 2004. Impairment loss for small homogeneous loans
collectively assessed on a portfolio basis amounted to HK$55 million, compared
with HK$96 million for the first half of 2004, reflecting further improvement in
credit card charge-offs in the generally stronger economic conditions.
Collective assessment of loans determined not to be individually impaired
resulted in a charge of HK$152 million, following an update of the historical
loss rate to cover the economic cycle. This compared with releases in general
provisions of HK$698 million and HK$114 million for the first and second halves
of 2004 respectively.
Operating expenses
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
Figures in HK$m restated restated
Personnel expenses:
- salaries and other costs 1,059 972 1,093
- retirement benefit costs 66 84 85
1,125 1,056 1,178
General and administrative expenses:
- rental expenses 98 95 98
- other premises and equipment 343 319 358
- other operating expenses 451 381 483
892 795 939
Depreciation of business
premises and equipment 135 126 130
Amortisation of intangible
assets 4 4 4
2,156 1,981 2,251
Cost:income ratio 26.7% 24.6% 28.1%
Staff numbers by region^
At 30Jun05 At 30Jun04 At 31Dec04
Hong Kong 7,148 7,233 7,229
Mainland and others 377 242 313
Total 7,525 7,475 7,542
^ Full-time equivalent
Operating expenses went up by HK$175 million, or 8.8 per cent, compared with the
same period last year. Personnel expenses rose by 6.5 per cent, attributable to
the salary increment at the beginning of the year and the increase in average
headcount of 193, which was mainly related to recruitment for Personal Financial
Services business and the expansion of the Mainland network. Increases in IT
costs on business and credit control systems accounted for a 7.5 per cent
increase in other premises and equipment cost. Other operating expenses rose by
18.4 per cent, due mainly to an increase in marketing expenditure for the
promotion of card and insurance products and processing costs as further
activities were outsourced to group service centres in Guangzhou and Shanghai.
Compared with the second half of 2004, operating expenses fell by HK$95 million,
or 4.2 per cent, due to the provision made for staff performance bonuses for
2004 in the previous half-year period.
Full-time equivalent staff at 30 June 2005 was 7,525, a drop of 17 compared with
the previous year-end, due to further migration of processing to the Mainland
service centres and higher staff turnover. The number of staff on the Mainland
increased by 64 in the first half of 2005, following the opening of a sub-branch
in Shenzhen and the expansion of the Fuzhou branch.
The cost:income ratio for the first half of 2005 was 26.7 per cent, compared
with 24.6 per cent and 28.1 per cent for the first and second halves of 2004.
Profit on disposal of tangible fixed assets and financial investments
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
Figures in HK$m restated restated
Profit on disposal of
financial investments
- realisation of amounts
previously recognised
in revaluation reserves
at beginning of
the period 327 301 80
- gains arising in current
period 1 28 3
328 329 83
Profit less loss on
disposal of tangible
fixed assets 20 20 10
348 349 93
Tax expenses
Taxation in the consolidated profit and loss account represents:
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
Figures in HK$m restated restated
Current tax - provision
for Hong Kong profits tax
Tax for the period 783 864 670
Benefit of previously
unrecognised tax losses - (1) 1
(Over)/under-provision
in respect of prior years - (15) 3
783 848 674
Current tax - taxation
outside Hong Kong
Tax for the period 6 3 4
Deferred tax
Origination and reversal
of temporary differences 135 141 41
Total tax expenses per
profit and loss account 924 992 719
Share of associated
companies' taxation 110 2 54
Total tax expenses
(including share of
associated companies'
taxation) 1,034 994 773
Effective tax rate 14.4% 13.7% 12.7%
The current tax provision is based on the estimated assessable profit for the
first half of 2005, and is determined for the bank and its subsidiaries
operating in the Hong Kong SAR using the Hong Kong profits tax rate of 17.5 per
cent (17.5 per cent for 2004). For subsidiaries and branches operating in other
jurisdictions, the appropriate tax rates prevailing in the countries in which
they operate are used.
Deferred tax is calculated at the tax rates that are expected to apply in the
year when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the profit and loss account, except when it relates to
items charged or credited directly to reserves, in which case the deferred tax
is also dealt with in the reserves. The carrying amount of deferred tax assets/
liabilities is reviewed at each balance sheet date and is reduced to the extent
that it is no longer probable that sufficient taxable profit will be available
to allow the related tax benefit to be utilised.
Earnings per share
The calculation of earnings per share for the first half of 2005 is based on
earnings of HK$6,045 million (HK$6,188 million for the first half of 2004) and
on the weighted average number of ordinary shares in issue of 1,911,842,736
shares (unchanged from the first half of 2004).
Dividends per share
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
HK$ HK$m HK$ HK$m HK$ HK$m
per share per share per share
First interim 1.10 2,103 1.10 2,103 - -
Second interim 1.10 2,103 1.10 2,103 - -
Third interim - - - - 1.10 2,103
Fourth interim - - - - 1.90 3,633
2.20 4,206 2.20 4,206 3.00 5,736
Segmental analysis
Segmental information is presented in respect of business and geographical
segments. Business by customer group information, which is more relevant to the
group in making operating and financial decisions, is chosen as the primary
reporting format.
For the purpose of segmental analysis, the allocation of revenue reflects the
benefits of capital and other funding resources allocated to the customer groups
or geographical segments by way of internal capital allocation and funds
transfer pricing mechanisms. Cost allocation is based on the direct cost
incurred by the respective customer groups and apportionment of management
overheads. Rental charges at market rate for usage of premises are reflected as
inter-segment income for the 'Other' customer group and inter-segment expenses
for the respective customer groups.
(a) By customer group
The group's business comprises five customer groups. Personal Financial Services
provides banking (including deposits, credit cards, mortgages and other retail
lending) and wealth management services (including insurance and investment) to
personal customers. Commercial Banking manages middle market and smaller
corporate relationships and specialises in trade-related financial services.
Corporate and Institutional Banking handles relationships with large corporate
and institutional customers. Treasury engages in interbank and capital market
activities and proprietary trading. Treasury also manages the funding and
liquidity positions of the bank and other market risk positions arising from
banking activities. 'Other' mainly represents management of shareholders' funds
and investments in premises, investment properties and available-for-sale
equities.
Personal Financial Services
Personal Financial Services (PFS) reported a growth of 12.8 per cent in pre-tax
profit, underpinned by the growth in net interest income and a net release in
loan impairment loss, mainly from mortgages and personal loans.
Net interest income grew by 20.4 per cent, benefiting from the growth in average
deposits and a widening of deposits spreads as the local market interest rates
moved up after a prolonged period of exceptionally low levels. The expansion of
the consumer lending portfolio also contributed to the growth in net interest
income despite further decline in mortgage portfolio yields.
The wealth management business remained the core of the PFS business. In a
rising interest rate environment, the focus of investment services shifted from
capital guaranteed funds to yield enhancement structured products and the
further widening of the investment product range. Private banking business
recorded encouraging growth in both customers and asset management
portfolios. Insurance continued to record satisfactory growth with a rise of 6.7
per cent in life annualised premiums following the successful launch of new
insurance plans featuring cumulative life protection and wealth benefits. Credit
card services income rose satisfactorily, driven by the growth of 10.6 per cent
and 20.6 per cent in card base and cardholder spending respectively.
Net fees income (mainly including the sales of retail investment products and
stockbroking and related income) fell by HK$186 million or 13.5 per cent. Net
earned insurance premiums rose by 39.1 per cent, mainly contributed from renewed
policies as the life insurance in-force policies continued to expand apart from
the growth in new policies. Other operating income rose by HK$65 million or 14.9
per cent.
During the first half of 2005, PFS customer advances grew by 1.2 per cent,
recorded in mortgages, card and personal loans, despite the fall in mortgages
under the suspended GHOS. Customer deposits were 0.8 per cent lower, compared
with the end of last year.
Commercial Banking
Commercial Banking (CMB) reported pre-tax profit of HK$437 million, a fall of
66.7 per cent compared with the same period last year. This fall was largely due
to the net charge for loan impairment of HK$453 million compared with a net
release of HK$581 million in the first half of 2004. At the operating profit
prior to loans impairment loss, CMB recorded growth of 4.9 per cent.
Net interest income increased by 17.4 per cent, underpinned by the strong growth
in average customer advances of 30.9 per cent and the widening of deposits
spreads. Growth of 6.8 per cent in trade finance income, consistent with the
increase in trade services turnover, was outweighed by a fall in investment
services income, resulting in an overall decline of 9.0 per cent in net fee
income, net earned insurance premiums and other operating income.
Customer advances rose by 11.7 per cent. There was particularly strong growth of
14.1 per cent recorded in trade finance as CMB further leveraged its strong
relationship management team, trade services capabilities and branches on the
Mainland and in Macau to provide customised services to meet customers' needs.
Corporate and Institutional Banking
Corporate and Institutional Banking (CIB) reported a pre-tax profit of HK$171
million, 60.2 per cent lower than the same period last year. This was affected
by the collectively assessed loan impairment charges of HK$109 million compared
with a net release of HK$116 million in the first half of 2004. Operating profit
before loans impairment loss was down by 10.8 per cent with the fall in fees and
other operating income outweighing the growth in net interest income, driven by
the growth of average customer advances and improved deposits spreads.
During the first half of 2005, corporate advances grew by 3.5 per cent.
Treasury
Treasury's pre-tax profit fell by 40.9 per cent. Net interest income fell by
31.5 per cent, affected by the rise in funding costs and fewer gapping
opportunities due to the flattening of the yield curves. Trading income fell by
66.3 per cent, mainly affected by the fall of HK$91 million in foreign exchange
income as a result of the drop in customer trade turnover, and the losses from
the economic hedges under the new accounting standards. Income from derivatives
trading rose by HK$47 million, attributable mainly to increased sales of
structured investment products to commercial and personal customers.
Other
Other showed a significant increase of 153.4 per cent in pre-tax profit. This
was mainly attributable to the surplus on revaluation of properties and the
improved return on shareholders' funds following the rise in market interest
rates.
Personal Corporate & Inter-
Financial Commercial Institutional segment
Figures in HK$m Services Banking Banking Treasury Other elimination Total
Half-year ended
30Jun05
Income and expenses
Net interest income 3,363 734 302 686 257 (78) 5,264
Net fee income 1,196 277 36 (11) 28 - 1,526
Net earned insurance
premiums 2,619 109 - - - - 2,728
Other operating
income 500 122 8 136 137 78 981
Inter-segment
income - - - - 154 (154) -
Total operating
income 7,678 1,242 346 811 576 (154) 10,499
Net insurance
claims incurred
and movement in
policyholder
liabilities (2,387) (22) - - - - (2,409)
Net operating
income before
loan impairment
(charges)/releases
and other
credit risk
allowances 5,291 1,220 346 811 576 (154) 8,090
Loan impairment
(charges)/ releases
and other
credit risk
allowances 260 (453) (109) - - - (302)
Net operating
income 5,551 767 237 811 576 (154) 7,788
Total operating
expenses^ (1,468) (429) (63) (80) (116) - (2,156)
Inter-segment
expenses (123) (25) (3) (3) - 154 -
Operating profit - - - - 348 - 348
Net surplus on
property
revaluation - - - - 877 - 877
Share of profits
of associated
companies 10 124 - 56 15 - 205
Profit before
tax 3,970 437 171 784 1,700 - 7,062
Share of pre-tax
profit 56.2% 6.2% 2.4% 11.1% 24.1% - 100.0%
Operating profit
excluding
inter-segment
transactions 4,083 338 174 731 306 - 5,632
^ Included in
operating
expenses is
depreciation/
amortisation
of (50) (9) (1) (1) (78) - (139)
At 30Jun05
Total assets 146,398 52,351 80,182 267,687 23,101 - 569,719
Total
liabilities 353,402 73,003 29,628 61,214 10,041 - 527,288
Investments in
associated
companies 96 1,210 - 546 597 - 2,449
Capital expenditure
incurred during
the period 63 13 5 1 15 - 97
Personal Corporate & Inter-
Financial Commercial Institutional segment Total
Figures in HK$m Services Banking Banking Treasury Other elimination restated
Half-year ended
30Jun04
Income and
expenses
Net interest
income 2,794 625 259 1,002 35 - 4,715
Net fee income 1,382 320 106 (9) 22 - 1,821
Net earned
insurance
premiums 1,883 115 - - - - 1,998
Other operating
income 435 123 8 404 141 - 1,111
Inter-segment
income - - - - 159 (159) -
Total operating
income 6,494 1,183 373 1,397 357 (159) 9,645
Net insurance
claims incurred
and movement in
policyholder
liabilities (1,560) (34) - - - - (1,594)
Net operating
income before
loan impairment
releases and
other credit risk
allowances 4,934 1,149 373 1,397 357 (159) 8,051
Loan impairment
releases and other
credit risk
allowances 49 581 116 - - - 746
Net operating
income 4,983 1,730 489 1,397 357 (159) 8,797
Total operating
expenses^ (1,334) (393) (56) (68) (130) - (1,981)
Inter-segment
expenses (128) (26) (3) (2) - 159 -
Operating profit 3,521 1,311 430 1,327 227 - 6,816
Profit on disposal
of tangible fixed
assets and financial
investments - - - - 349 - 349
Net surplus
on property
revaluation - - - - 91 - 91
Share of profits
of associated
companies - - - - 4 - 4
Profit before
tax 3,521 1,311 430 1,327 671 _ 7,260
Share of pre-tax
profit 48.5% 18.1% 5.9% 18.3% 9.2% - 100.0%
Operating profit
excluding
inter-segment
transactions 3,649 1,337 433 1,329 68 - 6,816
^ Included in
operating expenses
is depreciation/
amortisation
of (53) (9) (1) (1) (66) - (130)
At 30Jun04
Total assets 140,417 42,376 75,152 222,498 22,115 - 502,558
Total liabilities 327,788 72,671 24,605 18,538 18,890 - 462,492
Investments in
associated
companies 90 1,075 - 470 468 - 2,103
Capital
expenditure incurred
during the period 35 6 1 1 15 - 58
Personal Corporate & Inter-
Financial Commercial Institutional segment Total
Figures in HK$m Services Banking Banking Treasury Other elimination restated
Half-year ended
31Dec04
Income and expenses
Net interest income 2,912 706 337 848 177 - 4,980
Net fee income 1,083 306 95 (10) 18 - 1,492
Net earned insurance
premiums 2,346 128 - - - - 2,474
Other operating
income 726 140 8 303 125 _ 1,302
Inter-segment
income - - - - 161 (161) -
Total operating
income 7,067 1,280 440 1,141 481 (161) 10,248
Net insurance claims
incurred and movement
in policyholder
liabilities (2,199) (47) - - - - (2,246)
Net operating
income before
loan impairment
releases and
other credit
risk allowances 4,868 1,233 440 1,141 481 (161) 8,002
Loan impairment
releases and other
credit risk
allowances 2 15 14 - - - 31
Net operating
income 4,870 1,248 454 1,141 481 (161) 8,033
Total operating
expenses ^ (1,498) (481) (42) (91) (139) - (2,251)
Inter-segment
expenses (128) (3) (27) (3) - 161 -
Operating profit 3,244 764 385 1,047 342 _ 5,782
Profit on disposal of
tangible fixed
assets and
financial
investments - - - (4) 97 - 93
Net surplus
on property
revaluation - - - - 55 - 55
Share of
profits of
associated
companies 4 45 - 20 24 - 93
Profit before
tax 3,248 809 385 1,063 518 - 6,023
Share of
pre-tax profit 53.9% 13.4% 6.4% 17.7% 8.6% - 100.0%
Operating profit
excluding
inter-segment
transactions 3,372 767 412 1,050 181 - 5,782
^Included in
operating expenses
is depreciation/
amortisation of (51) (9) (1) (1) (72) - (134)
At 31Dec04
Total assets 142,592 46,712 77,353 256,368 23,963 - 546,988
Total liabilities 353,076 77,712 25,150 21,553 27,721 - 505,212
Investments in
associated
companies 94 1,123 - 491 591 - 2,299
Capital expenditure
incurred during the
period 69 11 1 1 8 - 90
(b) By geographical region
The geographical regions in this analysis are classified by the location of the
principal operations of the subsidiary companies or, in the case of the bank
itself, by the location of the branches responsible for reporting the results or
advancing the funds.
Total
Figures in HK$m Hong Kong Americas Other restated
Half-year ended 30Jun05
Income and expenses
Total operating income 9,441 962 96 10,499
Profit before tax 5,877 947 238 7,062
At 30Jun05
Total assets 485,067 64,811 19,841 569,719
Total liabilities 510,484 10,095 6,709 527,288
Capital expenditure incurred
during period 81 - 16 97
Contingent liabilities and
commitments 145,296 - 3,429 148,725
Half-year ended 30Jun04
Income and expenses
Total operating income 8,863 731 51 9,645
Profit before tax 6,524 718 18 7,260
At 30Jun04
Total assets 421,676 65,212 15,670 502,558
Total liabilities 448,473 7,967 6,052 462,492
Capital expenditure
incurred during period 55 - 3 58
Contingent liabilities and
commitments 111,159 113 1,938 113,210
Total
Figures in HK$m Hong Kong Americas Other restated
Half-year ended
31Dec04
Income and expenses
Total operating income 9,310 863 75 10,248
Profit before tax 5,075 848 100 6,023
At 31Dec04
Total assets 460,653 69,675 16,660 546,988
Total liabilities 490,711 9,315 5,186 505,212
Capital expenditure incurred
during period 88 - 2 90
Contingent liabilities and
commitments 127,246 - 2,925 130,171
Analysis of financial assets and liabilities by accounting treatment
The following matrix sets out the financial assets and liabilities by type and
by accounting treatment on adoption of HKAS 39. The related changes in
accounting policies are set out on page 65.
Fair value
through Available
profit or for Amortised
Figures in HK$m Trading loss sale cost Total
At 30Jun05
Financial assets
Cash and short-term
funds - - - 50,966 50,966
Placings with
banks maturing
after one month - - - 22,832 22,832
Treasury bills 1,843 - 4,604 - 6,447
Certificates of
deposit 1,017 190 30,614 1,124 32,945
Investment
securities 10,952 3,553 149,373 7,236 171,114
Derivatives
financial
instruments 1,326 3 223 - 1,552
Advances to
cutomers - - - 260,512 260,512
Financial
liabilities
Deposits by
banks - - - 34,753 34,753
Customer
accounts 7,475 - - 430,395 437,870
Certificates of
deposit and other
debt securities in
issue 9,836 - - 11,158 20,994
Securities net
short position 7,047 - - - 7,047
Derivatives
financial
instruments 1,243 23 591 - 1,857
Liabilities to
customers
under
investment contracts - - - 542 542
Liabilities to
customers under
insurance contracts - - - 11,558 11,558
Subordinated debts - 995 - 1,496 2,491
Analysis of assets and liabilities by remaining maturity
The maturity analysis is based on the classification set out in the table for
'Analysis of financial assets and liabilities by accounting treatment' on page
34.
Less Three One
Repayable than months year Over
on three to to five
Figures in HK$m demand months one year five years years Total
At 30Jun05
Assets
Cash and
short-term funds 7,735 43,231 - - - 50,966
Placings with
banks maturing
after one month - 14,436 8,192 204 - 22,832
Treasury bills - 3,869 2,578 - - 6,447
Certificates
of deposit 59 5,285 10,798 15,514 1,289 32,945
Investment securities 9,498 26,189 119,437 15,990 171,114
Derivatives financial
instruments - 1,552 - - - 1,552
Advances to customers 13,625 32,801 30,977 92,770 90,339 260,512
21,419 110,672 78,734 227,925 107,618 546,368
Liabilities
Deposits by banks 4,800 29,953 - - - 34,753
Customer accounts 245,003 179,555 9,010 3,552 750 437,870
Certificates of
deposit and other
debt securities
in issue - 278 3,392 16,638 686 20,994
Derivatives financial
instruments - 1,857 - - - 1,857
Securities net short
position - 7,047 - - - 7,047
Liabilities to customers
under investment
contracts 542 - - - - 542
Liabilities to customers
under insurance
contracts - - - - 11,558 11,558
Subordinated debts - - - 995 1,496 2,491
250,345 218,690 12,402 21,185 14,490 517,112
Cash and short-term funds
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Cash in hand and
balances with banks
and other financial
institutions 7,816 5,946 7,248
Money at call and
placings with banks
maturing within one
month 43,150 56,267 57,597
50,966 62,213 64,845
Trading securities
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Treasury bills 1,843 1,657 2,704
Certificates
of deposit 1,017 63 70
Equity investments 32 919 1,136
Other debt
securities 10,920 1,314 2,090
13,812 3,953 6,000
Financial assets designated as at fair value through profit or loss
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Certificates
of deposit 190 - -
Equity investments 1,161 - -
Other debt securities 2,392 - -
3,743 - -
Financial assets are designated as at fair value through profit or loss at
inception, usually together with the related liabilities or derivatives for
economic hedge. The policy and criteria for financial instruments designated as
at fair value through profit or loss are set out in note 1 of the additional
information on page 61. The figures also include those financial assets of life
insurance funds designated as at fair value for backing policyholder
liabilities.
Advances to customers
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Gross advances to
customers 261,713 247,615 252,564
Loans impairment
allowances:
- individually
assessed (733) (787) (692)
- collectively
assessed (468) (434) (319)
260,512 246,394 251,553
Included in advances
to customers are:
- trade bills 3,015 2,861 3,053
- loans
impairment
allowances (12) (12) (8)
3,003 2,849 3,045
Loans impairment allowances against advances to customers
Collectively assessed
Individual
Individually Portfolio unimpaired
Figures in HK$m assessed basis loans Total
At1Jan05 692 30 289 1,011
Amounts written off (69) (84) - (153)
Recoveries of advances
written off in previous
years 24 26 - 50
New impairment allowances
charged to profit and
loss account 430 84 152 666
Impairment allowances
released to
profit and loss
account (335) (29) - (364)
Unwind of discount
of loans impairment
loss (9) - - (9)
At 30Jun05 733 27 441 1,201
Total loans impairment allowances as a percentage of gross advances to customers
are as follows:
At 30Jun05 At 30Jun04 At 31Dec04
restated restated
% % %
Loans impairment
allowances
- Individually
assessed 0.28 0.32 0.27
- Collectively
assessed
- portfolio basis 0.01 0.01 0.01
- individually
unimpaired loans 0.17 0.16 0.11
Total loans
impairment
allowances 0.46 0.49 0.39
Total loans impairment allowances as a percentage of gross advances to customers
rose to 0.46 per cent as at 30 June 2005, compared with 0.39 per cent at the end
of 2004. Individually assessed allowances as a percentage of gross advances
stood at the same level as last year-end at 0.28 per cent. Collectively assessed
allowances rose by six basis points to 0.18 per cent of gross advances to
customers, compared with 0.12 per cent at the end of 2004, following an update
of the historical loss rate for calculation of allowances for collective
assessment of loans which were individually determined to be unimpaired.
Impaired loans to customers and allowances
The amounts of impaired loans to customers are as follows:
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Gross impaired
loans 1,946 3,434 1,793
Loans impairment
allowances (760) (818) (722)
Net impaired loans 1,186 2,616 1,071
Loans impairment
allowances as a
percentage of
gross impaired
loans 39.1% 23.8% 40.3%
Gross impaired
loans as a
percentage of
gross advances
to customers 0.7% 1.4% 0.7%
Impaired loans to customers are those advances where full repayment of principal
and/or interest is considered unlikely and are so classified as soon as such a
situation becomes apparent. Impairment allowances are made to write down the
carrying value of the advances to the discounted value of future recoverable
amounts, including the realisation of collateral.
Gross impaired loans rose by HK$153 million, or 8.5 per cent, to HK$1,946
million, compared with the end of 2004, the net effect of the increase in
commercial banking impaired loans and the recovery from residential mortgages.
Compared with 30 June 2004, gross impaired loans decreased by HK$1,488 million,
or 43.3 per cent, mainly due to the repayment of certain corporate customers.
Loans impairment allowances as a percentage of gross impaired loans improved to
39.1 per cent from 40.3 per cent at the end of 2004.
Overdue advances to customers
The amounts of advances to customers which are overdue for more than three
months and their expression as a percentage of gross advances to customers are
as follows:
At 30Jun05 At 30Jun04 At 31Dec04
restated restated
HK$m % HK$m % HK$m %
Gross advances
to customers
which have
been overdue
with respect
to either
principal or
interest for
periods of:
- six months or
less but
over three
months 500 0.2 715 0.3 587 0.2
- one year
or less but
over six
months 224 0.1 378 0.1 304 0.1
- over one
year 423 0.1 507 0.2 430 0.2
1,147 0.4 1,600 0.6 1,321 0.5
Advances with a specific repayment date are classified as overdue when the
principal or interest is overdue and remains unpaid at the period-end. Advances
repayable by regular instalments are treated as overdue when an instalment
payment is overdue and remains unpaid at the period-end. Advances repayable on
demand are classified as overdue either when a demand for repayment has been
served on the borrower but repayment has not been made in accordance with the
demand notice, or when the advances have remained continuously outside the
approved limit advised to the borrower for more than the overdue period in
question.
Rescheduled advances to customers
The amount of rescheduled advances and its expression as a percentage of gross
advances to customers is as follows:
At 30Jun05 At 30Jun04 At 31Dec04
restated restated
HK$m % HK$m % HK$m %
Rescheduled advances
to customers 357 0.1 2,621 1.1 1,512 0.6
Rescheduled advances are those which have been rescheduled or renegotiated for
reasons related to the borrower's financial difficulties. This will normally
involve the granting of concession terms and resetting the overdue account to
non-overdue status. A rescheduled advance will continue to be disclosed as such
unless the debt has been performing in accordance with the rescheduled terms for
a period of six to 12 months. Rescheduled advances which have been overdue for
more than three months under the rescheduled terms are reported as overdue
advances to customers (page 40).
Rescheduled advances reduced by HK$1,155 million, or 76.4 per cent, to HK$357
million at 30 June 2005, representing 0.1 per cent of gross advances to
customers. The reduction was mainly the result of the repayment and upgrade of
corporate customers and personal loans.
Segmental analysis of advances to customers by geographical area
Advances to customers by geographical area are classified according to the
location of the counterparties after taking into account the transfer of risk.
In general, risk transfer applies when an advance is guaranteed by a party
located in an area which is different from that of the counterparty. At 30 June
2005, over 90 per cent of the group's advances to customers and the related
impaired loans and overdue advances were classified under the area of Hong Kong
(unchanged from the positions at 30 June 2004 and 31 December 2004).
Gross advances to customers by industry sector
The analysis of gross advances to customers by industry sector based on
categories and definitions used by the Hong Kong Monetary Authority is as
follows:
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Gross advances to customers
for use in Hong Kong
Industrial, commercial
and financial sectors
Property development 15,048 13,909 12,818
Property investment 41,986 39,960 44,732
Financial concerns 4,399 4,819 3,996
Stockbrokers 298 372 314
Wholesale and retail trade 5,244 5,107 5,460
Manufacturing 7,770 3,733 4,384
Transport and transport equipment 12,080 11,416 11,173
Other 23,535 20,392 22,010
110,360 99,708 104,887
Individuals
Advances for the purchase
of flats under the Government Home
Ownership Scheme, Private Sector
Participation Scheme and Tenants
Purchase Scheme 24,713 28,177 26,386
Advances for the purchase of
other residential properties 81,545 80,740 79,987
Credit card advances 6,583 5,508 6,534
Other 7,385 7,435 7,122
120,226 121,860 120,029
Total gross advances for
use in Hong Kong 230,586 221,568 224,916
Trade finance 16,910 15,807 15,539
Gross advances for use
outside Hong Kong 14,217 10,240 12,109
Gross advances to customers 261,713 247,615 252,564
Lending to the industrial, commercial and financial sectors rose by 5.2 per cent
during the first half of 2005. Financial concerns, including investment holding
vehicles, grew by 10.1 per cent. Wholesale, retail and manufacturing together
were up by 32.2 per cent, reflecting the continued expansion of the economy.
Lending to the transport and transport equipment sector, mainly taxi and other
motor vehicle loans, also recorded a growth of 8.1 per cent.
Individual lending was up 0.2 per cent compared with the end of 2004, or up 2.0
per cent excluding mortgages under the GHOS Scheme which is still in suspension.
Residential mortgages went up by 1.9 per cent in an active and competitive
market. Card advances and others, mainly personal advances, together grew 2.3
per cent as the bank continued to promote consumer finance.
Trade finance advances recorded an encouraging growth of 8.8 per cent,
benefiting from further increase in external trade activities.
Gross advances for use outside Hong Kong rose by 17.4 per cent, largely due to
growth in lending activity by our mainland branches.
Financial investments
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Available-for-sale at fair value
- equity investments 1,560 1,484 1,838
- certificates of deposit and other
debt securities 183,030 - -
Held-to-maturity at amortised cost
debt securities 8,361 160,634 181,100
192,951 162,118 182,938
Fair value of held-to-maturity
debt securities 8,818 160,796 182,577
Treasury bills 4,604 3,715 3,923
Certificates of deposit 31,738 33,295 35,393
Equity shares 1,560 1,484 1,838
Other debt securities 155,049 123,624 141,784
192,951 162,118 182,938
Available-for-sale investments include treasury bills, certificates of deposit,
other debt securities and equity investments intended to be held for an
indefinite period of time, but which may be sold in response to needs for
liquidity or changes in the market environment. Available-for-sale investments
are carried at fair value with the gains and losses from change in fair value
recognised through equity reserves.
Held-to-maturity debt securities are stated at amortised cost, adjusted for the
amortisation of premiums and accretion of discounts over the period from the
date of purchase to the date of maturity.
On adoption of HKAS 39 on 1 January 2005, the group has reclassified all
held-to-maturity debt securities as available-for-sale, with the exception of
certain life insurance fund portfolios. This is to maintain the flexibility of
the group in managing its liquidity and interest rate risks.
Analysis of securities by counterparty and place of listing
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Trading securities 13,812 3,953 6,000
Financial assets designated as at
fair value through profit or loss 3,743 - -
Financial investments 192,951 162,118 182,938
210,506 166,071 188,938
At carrying value
Issued by public bodies:
- central governments and central banks 25,157 19,840 24,161
- other public sector entities 12,664 11,535 13,934
37,821 31,375 38,095
Issued by other bodies:
- banks and other financial institutions 151,264 112,859 128,129
- corporate entities 21,421 21,837 22,714
172,685 134,696 150,843
210,506 166,071 188,938
- listed in Hong Kong 7,429 6,814 8,069
- listed outside Hong Kong 2,366 26,854 29,000
9,795 33,668 37,069
- unlisted 200,711 132,403 151,869
210,506 166,071 188,938
At fair value
Issued by public bodies:
- central governments and central banks 25,172 19,791 24,435
- other public sector entities 12,680 11,739 14,371
37,852 31,530 38,806
Issued by other bodies:
- banks and other financial institutions 151,689 112,854 128,722
- corporate entities 21,422 21,849 22,887
173,111 134,703 151,609
210,963 166,233 190,415
- listed in Hong Kong 7,433 6,801 8,176
- listed outside Hong Kong 2,404 26,845 29,023
9,837 33,646 37,199
- unlisted 201,126 132,587 153,216
210,963 166,233 190,415
Amounts due from/to immediate holding company and fellow subsidiary companies
At balance sheet dates, the amounts due from/to immediate holding company and
fellow subsidiary companies included in the assets and liabilities balances of
the consolidated balance sheets are analysed as follows:
Figures in HK$m At 30Jun05 At 30Jun04 At 31Dec04
Amounts due from:
Cash in hand and balances with
banks and other financial institutions 1,013 1,588 1,227
Placings with banks 4,619 3,222 2,416
Trading securities 50 - 154
Financial assets designated as at
fair value through profit or loss 155 - -
Financial investments 1,236 1,557 1,574
Other assets 228 248 224
7,301 6,615 5,595
Amounts due to:
Customer accounts 136 147 165
Deposits from banks 9,946 7,002 3,301
Other liabilities 770 384 465
10,852 7,533 3,931
Investments in associated companies
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Share of net assets 2,138 2,103 1,988
Goodwill 311 - 311
2,449 2,103 2,299
Intangible assets
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Value of in-force long-term
assurance business 1,409 1,128 1,249
Other intangible assets 17 18 17
1,426 1,146 1,266
Other assets
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Items in the course of collection
from other banks 3,858 4,235 4,456
Prepayments and accrued income 3,328 2,873 3,029
Deferred tax assets 7 17 11
Non current assets held for sale 237 385 320
Other accounts 1,574 2,056 2,164
9,004 9,566 9,980
On adoption of HKFRS5, repossessed collateral assets have been reclassified from
'Advances to customers' to 'Non current assets held for sale' under 'Other
assets'.
Current, savings and other deposit accounts
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Current, savings and other deposit accounts:
- as per consolidated balance sheet 430,395 418,638 447,460
- structured deposits reported as trading
liabilities 7,475 - -
437,870 418,638 447,460
By type:
- demand and current accounts 29,583 33,183 36,148
- savings accounts 212,344 231,135 251,192
- time and other deposits 195,943 154,320 160,120
437,870 418,638 447,460
Certificates of deposit and other debt securities in issue
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Certificates of deposit and
other debt securities in issue:
- as per consolidated balance sheet 11,158 9,807 16,055
- structured certificates of deposit
and other debt securities in issue
reported as trading liabilities 9,836 - -
20,994 9,807 16,055
By type:
- Certificates of deposit in issue 20,839 9,807 15,409
- Other debt securities in issue 155 - 646
20,994 9,807 16,055
Current, savings and other deposit accounts (including structured deposits
reported as trading liabilities) fell by HK$9.6 billion, or 2.1 per cent, to
HK$437.9 billion at 30 June 2005, compared with the last year-end. Certificates
of deposit and other debt securities in issue (including those reported as
trading liabilities) rose by HK$4.9 billion to HK$21.0 billion at 30 June 2005.
As interest rates gradually moved up, customer deposits shifted from current and
savings accounts to time deposits. Certificates of deposit and other deposit
instruments with yield enhancement features also gained in popularity.
Trading liabilities
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Certificates of deposit and
other debt securities in issue 9,836 - -
Structured deposits 7,475 - -
Short positions in securities 7,047 2,657 5,840
24,358 2,657 5,840
Trading liabilities includes customer deposits and certificates of deposit with
embedded options or other derivatives, the market risk of which was managed in
the trading book.
Other liabilities
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Items in the course of transmission
to other banks 5,629 5,162 6,136
Accruals 1,124 1,703 2,303
Long-term liabilities attributable to
policy holders - 6,342 8,291
Other 1,113 1,988 4,252
7,866 15,195 20,982
Subordinated liabilities
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Floating rate subordinated notes
due 2015 1,496 - -
4.125 per cent subordinated notes due 2015
reported as financial liabilities
designated as at fair value through profit
or loss 995 - -
2,491 - -
In June 2005, the bank issued subordinated notes of total nominal value of
HK$2,500 million, divided into a fixed rate tranche of HK$1,000 million and a
floating rate tranche of HK$1,500 million. Both tranches will mature on or about
23 June 2015 with a one-time call option in June 2010 (call option date).
The fixed rate notes bear an interest rate of 4.125 per cent per annum payable
semi-annually from the issue date to the call option date at which point, if the
notes are not redeemed, the interest rate will be reset to three-month HIBOR
plus 0.825 per cent, payable quarterly.
The floating rate notes bear an interest at three-month HIBOR plus 35 basis
points payable quarterly from the issue date to the call option date.
Thereafter, if the notes are not redeemed, the interest rate will be reset to
three-month HIBOR plus 0.85 per cent.
Shareholders' funds
At 30Jun05 At 30Jun04 At 31Dec04
Figures in HK$m restated restated
Share capital 9,559 9,559 9,559
Retained profits 26,222 24,293 23,854
Premises revaluation resevere 3,387 2,615 2,778
Long-term equity investment
revaluation reserve - 635 935
Cash flow hedge reserve (256) - -
Available-for-sale investment reserve 294 - -
Capital redemption and
share option reserves 193 137 165
Other reserves (2) - -
Total reserves 29,838 27,680 27,732
39,397 37,239 37,291
Proposed dividends 2,103 2,103 3,633
Shareholders' funds 41,500 39,342 40,924
Return on average shareholders' funds 29.7% 32.0% 25.2%
There was no purchase, sale or redemption of the bank's listed securities by the
bank or any of its subsidiaries during the first half of 2005.
Shareholders' funds (excluding proposed dividends) rose by HK$2,106 million, or
5.6 per cent, to HK$39,397 million at 30 June 2005. Retained profits increased
by HK$2,368 million and premises revaluation reserve rose by HK$609 million,
reflecting the rise in the property market.
The return on average shareholders' funds was 29.7 per cent, compared with 32.0
per cent and 25.2 per cent for the first and second halves of 2004 respectively.
Capital resources management
Analysis of capital base and risk-weighted assets
Figures in HK$m At 30Jun05 At 30Jun04 At 31Dec04
Capital base
Tier 1 capital
- share capital 9,559 9,559 9,559
- retained profits 21,829 21,193 20,560
- classified as regulatory reserve (468) - -
- capital redemption reserve 99 99 99
- less: goodwill (311) (311) (302)
- total 30,708 30,540 29,916
Tier 2 capital
- property revaluation reserve 4,710 4,965 5,322
- available-for-sale investment and
equity revaluation reserve 350 422 625
- collective impairment allowances 468 403 289
- regulatory reserve 468 - -
- term subordinated debt 2,491 - -
- total 8,487 5,790 6,236
Unconsolidated investments and other
deductions (2,871) (2,606) (2,829)
Total capital base after deductions 36,324 33,724 33,323
Risk-weighted assets
On-balance sheet 276,339 245,792 259,429
Off-balance sheet 17,698 15,591 16,577
Total risk-weighted assets 294,037 261,383 276,006
Total risk-weighted assets
adjusted for market risk 292,331 263,236 277,029
Capital adequacy ratios
After adjusting for market risk
- tier 1^ 10.5% 11.6% 10.8%
- total^ 12.4% 12.8% 12.0%
Before adjusting for market risk
- tier 1 10.4% 11.7% 10.8%
- total 12.4% 12.9% 12.1%
^The capital ratios take into account market risks in accordance with the
relevant Hong Kong Monetary Authority guideline under the Supervisory Policy
Manual.
In accordance with the HKMA guideline 'Impact of the New Hong Kong Accounting
Standards on Authorised Institutions' Capital Base and Regulatory Reporting',
the bank has earmarked a 'Regulatory Reserve' from retained profits and it is
included as tier 2 capital together with the bank's collective impairment
allowances after the adoption of HKAS 39.
The total capital ratio rose by 0.4 percentage points to 12.4 per cent at 30
June 2005, compared with 12.0 per cent at 31 December 2004. The capital base at
30 June 2005 increased by HK$3,001 million to HK$36,324 million. In June 2005,
the bank issued subordinated notes, which qualify as tier 2 capital, amounting
to HK$2,491 million to achieve a more balanced capital structure and to support
business growth. Risk-weighted assets adjusted for market risk grew by 5.5 per
cent, mainly attributable to the increase in advances to customers and debt
securities holdings.
Liquidity ratio
The average liquidity ratio for the period, calculated in accordance with the
Fourth Schedule of the Hong Kong Banking Ordinance, is as follows:
Half-year ended Half-year ended Half-year ended
30Jun05 30Jun04 31Dec04
The bank and its major
banking subsidiaries 43.6% 48.1% 46.3%
Reconciliation of cash flow statement
(a) Reconciliation of operating profit to net cash flow from operating
activities
Half-year ended Half-year ended
30Jun05 30Jun04
Figures in HK$m restated
Operating profit 5,632 6,816
Net interest income (5,264) (4,715)
Dividend income (37) (76)
Loans impairment charges/(releases)
and other credit risk allowances 302 (746)
Depreciation 135 126
Amortisation of intangible assets 4 4
Amortisation of long-term investments 8 241
Advances written off net of recoveries (112) (391)
Interest received 5,091 4,592
Interest paid (2,537) (1,161)
Operating profit before changes in
working capital 3,222 4,690
Change in placings with banks
maturing after one month (5,350) 14,822
Change in trading securities 3,132 52
Change in financial assets designated as at
fair value through profit or loss 299 -
Change in derivatives (167) 76
Change in advances to customers (8,856) (16,297)
Change in financial investments 1,277 (1,497)
Change in other assets (171) (1,520)
Change in current, savings
and other deposit accounts (9,789) (13,509)
Change in deposits from banks 22,804 10,090
Change in trading liabilities 7,817 1,143
Change in certificates of deposit and
other debt securities in issue (1,454) 1,920
Change in other liabilities (731) (675)
Change in financial liabilities designated as
at fair value through profit or loss (1) -
Elimination of exchange differences
and other non-cash items (1,094) 1,743
Cash generated from operating activities 10,938 1,038
Taxation paid (222) (212)
Net cash inflow from operating activities 10,716 826
(b) Analysis of the balances of cash and cash equivalents
At 30Jun05 At 30Jun04
Figures in HK$m restated
Cash in hand and balances with banks
and other financial institutions 7,816 5,945
Money at call and placings with banks
maturing within one month 41,614 55,865
Treasury bills 1,033 641
Certificates of deposit 2 1,069
50,465 63,520
Contingent liabilities, commitments and derivatives
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 30Jun05
Contingent liabilities:
Guarantees 13,343 13,112 3,336
Commitments:
Documentary credits and short-term
trade-related transactions 8,845 1,782 1,764
Undrawn formal standby facilities,
credit lines and other commitments
to lend:
- under one year 100,918 - -
- one year and over 25,593 12,796 11,770
Other 26 26 26
135,382 14,604 13,560
Exchange rate contracts:
Spot and forward foreign exchange 131,827 1,346 341
Other exchange rate contracts 31,916 382 118
163,743 1,728 459
Interest rate contracts:
Interest rate swaps 169,762 1,476 406
Other interest rate contracts 1,669 8 3
171,431 1,484 409
Other derivative contracts 311 17 9
At 30Jun04
Contingent liabilities:
Guarantees 10,905 10,641 3,580
Commitments:
Documentary credits and short-term
trade-related transactions 9,392 1,878 1,873
Undrawn formal standby facilities, credit
lines and other commitments to lend:
- under one year 72,099 - -
- one year and over 20,649 10,324 9,382
Other 165 165 74
102,305 12,367 11,329
Exchange rate contracts:
Spot and forward foreign exchange 76,742 762 220
Other exchange rate contracts 29,534 372 123
106,276 1,134 343
Interest rate contracts:
Interest rate swaps 119,216 1,364 316
Other interest rate contracts 6,576 64 28
125,792 1,428 344
Other derivative contracts 36 3 1
At 31Dec04
Contingent liabilities:
Guarantees 10,722 10,447 3,501
Commitments:
Documentary credits and short-term
trade-related transactions 9,020 1,844 1,805
Undrawn formal standby facilities, credit
lines and other commitments to lend:
- under one year 86,714 - -
- one year and over 23,677 11,839 10,460
Other 38 38 38
119,449 13,721 12,303
Exchange rate contracts:
Spot and forward foreign exchange 138,269 1,066 298
Other exchange rate contracts 23,158 323 106
161,427 1,389 404
Interest rate contracts:
Interest rate swaps 120,603 1,421 347
Other interest rate contracts 5,067 15 6
125,670 1,436 353
Other derivative contracts 1,373 46 23
The tables above give the nominal contract, credit equivalent and risk-weighted
amounts of off-balance sheet transactions. The credit equivalent amounts are
calculated for the purposes of deriving the risk-weighted amounts. These are
assessed in accordance with the Third Schedule of the Hong Kong Banking
Ordinance on capital adequacy and depend on the status of the counterparty and
the maturity characteristics. The risk weights used range from 0 per cent to 100
per cent for contingent liabilities and commitments, and from 0 per cent to 50
per cent for exchange rate, interest rate and other derivatives contracts.
Contingent liabilities and commitments are credit-related instruments which
include acceptances, letters of credit, guarantees and commitments to extend
credit. The risk involved is essentially the same as the credit risk involved in
extending loan facilities to customers. These transactions are, therefore,
subject to the same credit origination, portfolio maintenance and collateral
requirements as for customers applying for loans. As the facilities may expire
without being drawn upon, the total of the contract amounts is not
representative of future liquidity requirements.
Off-balance-sheet financial instruments arise from futures, forward, swap and
option transactions undertaken in the foreign exchange, interest rate and equity
markets.
The contract amounts of these instruments indicate the volume of transactions
outstanding at the balance sheet date and do not represent amounts at risk. The
credit equivalent amount of these instruments is measured as the sum of positive
mark-to-market values and the potential future credit exposure in accordance
with the Third Schedule of the Hong Kong Banking Ordinance.
Derivatives financial instruments are held for trading, as financial instruments
designated as at the fair value through profit or loss or designated as either
fair value hedge or cash flow hedges. The accounting policies for each class of
derivatives on adoption of HKAS 39 are set out in note 1 of the additional
information on page 61. The following table shows the nominal value and
marked-to-market assets and liabilities of each class of derivatives.
At 30Jun05 At 30Jun04 At 31Dec04
Non- Non-
Figures in HK$m Trading Hedging Trading trading Trading trading
Contract amounts:
Interest rate contracts 103,968 67,463 48,677 77,115 54,755 70,915
Exchange rate contacts 163,743 - 105,965 311 161,117 310
Other derivative contacts 311 - 36 - 1,373 -
268,002 67,463 154,678 77,426 217,245 71,225
Derivative assets:
Interest rate contracts 675 223 514 - 519 -
Exchange rate contracts 647 - 693 - 1,160 -
Other derivative contracts 7 - 2 - 5 -
1,329 223 1,209 - 1,684 -
Derivative liabilities:
Interest rate contracts 847 591 524 - 477 -
Exchange rate contracts 412 - 437 - 796 -
Other derivative contracts 7 - - - - -
1,266 591 961 - 1,273 -
The above derivative assets, being the total positive marked-to-market value of
the derivative contracts and represent their replacement costs as none of these
contracts are subject to any bilateral netting arrangement.
Cross-border claims
Cross-border claims include receivables and loans and advances, balances due
from banks and holdings of certificates of deposit, bills, promissory notes,
commercial paper and other negotiable debt instruments and also include accrued
interest and overdue interest on these assets. Claims are classified according
to the location of the counterparties after taking into account the transfer of
risk. For a claim guaranteed by a party situated in a country different from the
counterparty, the risk will be transferred to the country of the guarantor. For
a claim on the branch of a bank or other financial institution, the risk will be
transferred to the country where its head office is situated. Claims on
individual countries or areas, after risk transfer, amounting to 10 per cent or
more of the aggregate cross border claims are shown as follows:
Banks Sovereign
& other & public
financial sector
Figures in HK$m institutions entities Other Total
At 30Jun05
Asia-Pacific excluding Hong Kong:
- Australia 25,194 61 954 26,209
- other 27,760 1,600 6,197 35,557
52,954 1,661 7,151 61,766
The Americas:
- Canada 19,011 4,599 1,571 25,181
- other 13,396 2,601 10,882 26,879
32,407 7,200 12,453 52,060
Western Europe:
- United Kingdom 25,206 15 6,897 32,118
- other 79,498 2,577 6,757 88,832
104,704 2,592 13,654 120,950
At 30Jun04(restated)
Asia-Pacific excluding Hong Kong:
- Australia 19,187 214 1,063 20,464
- other 22,489 1,264 6,638 30,391
41,676 1,478 7,701 50,855
The Americas:
- Canada 17,502 6,009 803 24,314
- other 10,058 4,658 10,963 25,679
27,560 10,667 11,766 49,993
Western Europe:
- United Kingdom 21,508 16 5,911 27,435
- other 59,735 2,271 4,818 66,824
81,243 2,287 10,729 94,259
At 31Dec04(restated)
Asia-Pacific excluding Hong Kong:
- Australia 22,023 62 1,223 23,308
- other 26,303 1,530 5,448 33,281
48,326 1,592 6,671 56,589
The Americas:
- Canada 19,748 4,957 1,566 26,271
- other 11,326 3,236 10,344 24,906
31,074 8,193 11,910 51,177
Western Europe:
- United Kingdom 24,412 16 5,969 30,397
- other 79,577 2,096 6,388 88,061
103,989 2,112 12,357 118,458
Additional information
1. Accounting policies
This news release has been prepared on a basis consistent with the accounting
policies adopted in the 2004 financial statements except for the changes in
accounting policies following the adoption on 1 January 2005 of the new and
revised Hong Kong Financial Reporting Standards and Hong Kong Accounting
Standards ('HKFRSs') as set out below.
HKFRS 2: Share-Based Payment ('HKFRS 2')
In prior years, no compensation cost was recognised for share options granted at
fair value or not more than 20 per cent discount to fair value. Where the
options were granted by the bank's ultimate holding company without charging the
bank for the value of the option, the value was credited to equity reserves. For
restricted share awards, the cost for acquisition of shares for the conditional
award was charged to 'staff costs' over the period in respect of which the
performance condition applied.
On adoption of HKFRS 2, all share compensations are recognised at fair value
which takes into account the vesting conditions related to market performance.
Compensation cost is measured at the date of grant based on the assessed value
of the option or award and is recognised over the service period, which is
usually the vesting period, as part of 'personnel cost'.
The change in accounting policy has been applied retrospectively by way of prior
year adjustment and restatement of comparative figures for 2004. The unamortised
cost of share compensation of HK$66 million at 31 December 2004 (30 June 2004:
HK$38 million) was adjusted to retained profits. The personnel costs for the
first and second halves of 2004 have been restated to recognise the share
compensation cost of HK$19 million and HK$28 million attributable to the periods
respectively. Share compensation cost for the first half of 2005 amounting to
HK$28 million was recognised through the profit and loss account.
HKFRS 3: Business Combinations ('HKFRS 3')
In prior years, positive goodwill arising from the acquisition of subsidiary and
associated companies was amortised over its estimated life, usually taken as 20
years, on a straight-line basis in the profit and loss account.
On adoption of HKFRS 3, positive goodwill is not amortised but is tested for
impairment at each balance sheet date at the cash-generating unit level by
applying a fair-value-based test in accordance with HKAS 36 'Impairment of
Assets'.
The accounting policy on goodwill is applied retrospectively by way of prior
year adjustment and restatement of comparative figures for 2004. The positive
goodwill at 31 December 2004 is restated to reverse all amortisation made prior
to that date (HK$9 million) with a corresponding adjustment through retained
profit at 31 December 2004. The operating profit for the second half of 2004 is
adjusted upwards by HK$9 million to reverse the goodwill amortisation for the
period (first half of 2004: nil). No impairment loss has been recognised for the
first half of 2005.
HKFRS 4: Insurance Contracts ('HKFRS 4')
In prior years, all contracts of insurance business, including investment-linked
contracts were accounted as insurance contracts.
On adoption of HKFRS 4, certain long-term insurance contracts which do not
transfer significant insurance risks are treated as investment contracts. The
financial assets held under these investment contracts are accounted based on
their classification in accordance with HKAS 39 as described below. Liabilities
under insurance contract are recognised as financial and carried at valuation.
No restatement of 2004 comparative figures is required.
HKFRS 5: Non-Current Assets Held for Sale and Discontinued Operations
('HKFRS 5')
In prior years, collateral assets repossessed for recovery of non-performing
advances were reported as advances. The carrying value was adjusted to the net
realisable value of the repossessed assets and classified as non-performing
advances.
On adoption of HKFRS 5, repossessed collateral assets are reported as
'Non-current asset held for sale' under 'Other assets'.
The change in accounting policy has been applied retrospectively and reflected
by way of prior year adjustment and the restatement of comparative figures for
2004. At 31 December 2004, repossessed assets of HK$320 million were
reclassified from 'Customer advances' to 'Non-current assets held for sale' (30
June 2004: HK$385 million). Gains on disposal of HK$18 million and HK$19 million
for the first and second halves of 2004 respectively were re-classified from
'Net charge for bad and doubtful debts' to 'Other operating income'. Gains on
disposal of HK$9 million for the first half of 2005 were recorded under 'Other
operating income'.
HKAS 17: Leasing ('HKAS 17')
In prior years, leasehold premises were stated at valuation, as valued by
professionally qualified valuers. The apportionment of the value between the
land and building elements was made by estimating the 'net replacement cost' of
the building as the value of the building element, and taking the residual
figure as the value of the land element.
On adoption of HKAS 17, where leasehold properties are held for own use and
where the land and buildings elements can be allocated reliably as at inception
of the lease, the land element is treated as an operating lease. As such, land
premiums or other costs for acquiring the leasehold land are amortised over the
term of the lease. Where the land and building cannot be allocated reliably as
at the inception of the lease, the land and building elements will continue to
be treated as finance leases and carried at fair value.
The land element of a leasehold premise with the cost of land premium paid
separately is accounted for as an operating lease. The revaluation reserve on
the leasehold land is de-recognised and the related deferred taxation reversed,
while the cost of land premium paid is reflected as a prepayment under 'Other
assets' and amortised over the remaining lease term. Amortisation of land
premium is recognised as 'Rental charges' instead of depreciation.
The change in accounting policy is adopted retrospectively and reflected by way
of prior year adjustment and restatement of comparative figures.
Net increases/(decreases) in the outstanding balances on restatement of the
balance sheets
Figures in HK$m At 30Jun04 At 31Dec04
Assets:
Premises (2,501) (2,511)
Prepayment 616 609
Liabilities and reserves:
Premises revaluation reserve (1,435) (1,502)
Retained profits (120) (66)
Deferred tax liabilities (330) (334)
Increases/(decreases) in the following items on restatement of the profit and
loss accounts
Half-year ended Half-year ended
Figures in HK$m 30Jun04 31Dec04
Depreciation (23) (29)
Rental expense 7 7
Net surplus of revaluation of
properties (net of deferred tax) (25) 17
Rental expense on leasehold land for the first half of 2005 amounted to HK$7
million.
HKAS 19: Employee Benefit ('HKAS 19')
In prior years, only the actuarial gains or losses exceeding the threshold
prescribed by HKSSAP 34 were taken into account in calculating the retirement
benefit costs of defined benefit schemes.
The revised HKAS 19 effective from 1 January 2005 provides an option for
actuarial gains or losses to be recognised in full through 'Retained profits' in
the year of occurrence. The group has elected to take the option to recognise
all actuarial gains or losses through retained profits in the current year. To
reflect the change in accounting policy, the balance of actuarial loss amounting
to HK$82 million has been adjusted through 'Retained profits' as at 31 December
2004. (30 June 2004: actuarial gain of HK$128 million). An actuarial loss for
the first half of 2005, amounting to HK$9 million, has been recognised through
retained profits.
HKAS 27: Consolidated and Separate Financial Statements ('HKAS 27')
HKAS Interpretation 12 'Consolidation - Special Purpose Entities' ('Int 12')
Life insurance subsidiary
In prior years, on consolidation of the life insurance subsidiary, long-term
assurance assets and liabilities attributable to policyholders were recognised
in aggregate under 'Other assets' and 'Other liabilities' respectively. Income
from long-term assurance assets was reported together with net earned insurance
premiums, less net insurance claims and movement in policyholder liabilities, as
'Insurance underwriting profit' in the profit and loss account.
On adoption of HKAS 27, life insurance subsidiary accounts are consolidated
line-by-line. Assets of the life insurance subsidiary, including long-term
assurance assets, are reported according to asset type as presented in the
group's consolidated balance sheet. Net earned insurance premiums and net
insurance claims are separately shown in the profit and loss account, with
income on assets reported under the same income categories as in the group's
consolidated profit and loss account.
The change in accounting policy has been adopted retrospectively and the
comparative figures of 2004 have been restated to reflect the aforesaid
reclassifications, except for the treatment of financial assets and the related
income, in accordance with the requirement of HKAS 39 as described below.
HKAS 38: Intangible Assets ('HKAS 38')
In prior years, costs incurred for development of IT software for internal use
were expensed through the profit and loss account as incurred.
On adoption of HKAS 38, costs incurred in the development phase of a project to
produce application software for internal use are capitalised and amortised over
the software's estimated useful life, usually three years. The change in
accounting policy came into effect on 1 January 2005 and the amount of costs
capitalised for the first half of 2005 amounted to HK$5 million.
Value of in-force long-term assurance business (embedded value) previously
grouped under 'Other assets' are reported under 'Intangible assets' with effect
from 1 January 2005.
HKAS 39: Financial Instruments - Recognition and Measurement
Interest income and expense
In prior years, interest income on loans and advances and debt securities and
interest expense on deposits and debt instruments in issue were recognised on an
accrual basis using the relative contract or coupon interest rates. When a loan
was considered doubtful, interest was suspended and ceased to accrue.
Fees on loan origination are recognised when receivable except when such fees
are charged to cover the costs of continuing service to, or risk borne for, the
customers, or are interest in nature. In these cases, the fees are recognised on
an appropriate basis over the relevant period. Costs associated with loan
origination or acquisition are usually charged as interest expenses or operating
expenses when incurred. Premiums or discounts of debt securities held, or debt
instruments in issue, are amortised over the period from the date of purchase or
issue to the date of maturity, as part of interest income or interest expense.
On adoption of HKAS 39, interest income and expenses are recognised using the
effective interest method. The calculation of effective interest includes all
fees, commissions and costs on loans and advances and premiums and discounts on
debt securities.
Interest will continue to be recognised on impaired financial assets using the
rate of interest used to discount future cash flows for the purpose of measuring
the related impairment loss. Subsequent unwinding of discount allowance is
recognised as interest income.
Interest income and interest expense of trading assets and liabilities and
financial assets and liabilities designated as at fair value are recognised as
part of 'Net trading income' and 'Net income on financial instruments designated
as at fair value' respectively in the profit and loss account, instead of
'Interest income' and 'Interest expense' as for those arising from other
financial assets and liabilities.
Interest receipt and payment of interest rate derivatives of qualifying hedges
will be accounted as interest income or interest expenses following the
underlying recognised assets or liabilities. Interest receipts and payments of
other interest rate derivatives are recognised as trading income or net income
from financial instruments designated as at fair value through profit or loss.
Derivatives financial instruments
In prior years, derivatives financial instruments held for trading purposes were
accounted at fair value and carried as assets when the fair value was positive
and as liabilities when the fair value was negative. Gains or losses from
changes in fair value were recognised through the profit and loss account.
Derivatives held for non-trading purposes, including qualifying hedges and
synthetic alteration positions in accordance with defined risk management
strategies, were accounted for on a basis equivalent to the underlying assets,
liabilities and positions.
On adoption of HKAS 39, all derivatives are initially recognised at fair value
and carried as assets when the fair value is positive and as liabilities when
the fair value is negative. Subsequent changes in fair value are recognised
depending on the purpose of the derivatives as follows.
Derivatives financial instruments designated as hedges will apply hedge
accounting provided certain qualifying criteria are met. There are two types of
hedges:
- fair value hedge, a hedge against the fair value of recognised assets or
liabilities or firm commitments. This will be accounted for with the changes in
fair value of the derivatives, together with the changes in fair value of the
hedged assets or liabilities that are attributable to the hedged risk, recorded
through the profit and loss account.
- cash flow hedge, a hedge against the cash flows attributable to recognised
assets or liabilities or forecast transactions. This is accounted for with
changes in the fair value of the derivatives initially through equity, and
subsequently released into the profit and loss account in line with the
recognition of income or expense of the assets or liabilities being hedged.
Derivatives financial instruments held for trading and those that do not qualify
for hedge accounting, will be accounted for with changes in fair value reported
through the profit and loss account.
Financial assets
In prior years, all financial assets were carried at cost or amortised cost, net
of impairment provisions, except for securities held for trading purposes and
long-term equity investments which were held at fair value. Gains and losses
from change in fair value were recognised in the profit and loss account in
respect of securities held for trading, and in equity in respect of long-term
equity investments.
On adoption of HKAS 39, financial assets are recognised based on the following
classifications:
Loans and advances
Loans and advances not intended for trading are carried at amortised cost taking
into account the unamortised portion of fees and costs less impairment
allowances.
Held to maturity
Debt securities with fixed maturities that management has the positive intention
and ability to hold to maturity are carried at amortised cost.
Available for sale
Available-for-sale investments including treasury bills, certificates of
deposits, other debt securities and equities intended to be held for an
indefinite period of time but which may be sold in response to needs for
liquidity or changes in market environment are carried at fair value. Gains and
losses from changes in fair value are recognised in equity until the financial
asset is derecognised or impaired, at which time the cumulative gain or loss
previously recognised in equity will be transferred to the profit and loss
account.
Trading securities
Treasury bills, debt securities, equity shares which have been acquired or
incurred principally for the purpose of selling or repurchasing in the near term
are classified as trading securities. Trading securities are recognised at fair
value and transaction costs are taken to the profit and loss account. The
changes in fair value are recognised as 'trading income' in the profit and loss
account.
Financial assets designated as at fair value through profit or loss
A financial instrument is classified in this category if it meets the criteria
set out below, and is so designated by management. The group designates
financial instruments at fair value because the designation:
- eliminates or significantly reduces a measurement or recognition inconsistency
that would otherwise arise from measuring assets or liabilities or recognising
the gains and losses on them on different bases; or
- applies to a group of financial assets, financial liabilities or both that is
managed and its performance evaluated on a fair value basis, in accordance with
the group's documented risk management or investment strategy, and where
information about the group is provided internally on that basis to the group's
key management personnel; or
- relates to financial instruments containing one or more embedded derivatives
which significantly modify the cash flows resulting from the financial
instruments, and which would otherwise require separate accounting.
Financial assets so designated are recognised initially at fair value and
transaction costs taken directly to the profit and loss account. Regular way
purchases of financial assets are accounted for at trade date.
The changes in fair value are recognised as 'Net income on fair value through
profit or loss' in the profit and loss account.
Impairment of financial assets
Loans and advances
In prior years, provisions for bad and doubtful debts were classified into
specific and general provisions. Specific provisions on loans were assessed
individually or, for small homogeneous loans, on a portfolio basis. General
provisions were assessed on loans which were not identified as impaired
individually. The assessment methodologies were in line with the requirements of
HKAS 39 as set out below.
On adoption of HKAS 39, impairment allowances are made on a loan when there is
objective evidence of impairment as a result of the occurrence of certain loss
events (as listed below) that will impact on the estimated future cash flows of
the loan. Impairment loss is assessed either individually for individually
significant loans, or collectively for loan portfolios with similar credit risk
characteristics.
Loss events include:
(i) significant financial difficulty of the issuer or obligor;
(ii) a breach of contract, such as a default or delinquency in interest or
principal payments;
(iii) the group granting to the borrower, for economic or legal reasons relating
to the borrower's financial difficulty, a concession that the lender would not
otherwise consider;
(iv) it becoming probable that the borrower will enter bankruptcy or other
financial reorganisation;
(v) the disappearance of an active market for that financial asset because of
financial difficulties; or
(vi) observable data indicating that there is a measurable decrease in the
estimated future cash flows from a group of financial assets since the initial
recognition of those assets, although the decrease cannot yet be identified with
the individual financial assets in the group, including:
- adverse changes in the payment status of borrowers in the group; or
- national or local economic conditions that correlate with defaults on the
assets in the group.
Impairment loss of an individually assessed loan is measured as the difference
between the carrying value and the present value of estimated future cash flows
discounted at the original effective interest rate of the individual loan.
For the purpose of collective assessment of impairment, loans are grouped on the
basis of similar credit risk characteristics relevant to the estimation of
future cash flows. Portfolios of small homogeneous loans are collectively
assessed using roll rate or historical loss rate methodologies. Loans which have
been assessed individually and determined to have no objective evidence of
impairment are grouped by similar credit characteristics and collectively
assessed based on historical loss experience of each type of loan and
management judgement of the current economic and credit environment.
Other financial assets
In prior years, financial assets, other than loans and advances, were reviewed
on each balance sheet date to determine whether there was any indication of
impairment. If the recoverable amount of the asset was estimated to be less than
its carrying amount, the carrying amount of the asset was reduced to its
recoverable amount and the impairment loss was recognised in the profit and loss
account. For investment securities carried at fair value through equity, any
loss previously recognised in equity was transferred to the profit and loss
account.
On adoption of HKAS 39, held-to-maturity investments and available-for-sale
financial assets are assessed for objective evidence of impairment at each
balance sheet date. Impairment loss for held-to-maturity investments is
recognised through the profit and loss account. When an available-for-sale
financial asset is determined to be impaired, the cumulative loss previously
recognised in equity will be transferred to the profit and loss account.
Financial liabilities
In prior years, all financial liabilities except trading securities short
positions were carried at cost or amortised cost. Trading securities short
positions were carried at fair value and any gains and losses from changes in
fair value were recognised through the profit and loss account.
On adoption of HKAS 39, the group's financial liabilities are recognised based
on the following classifications:
Trading liabilities
Trading liabilities, include trading securities short positions, customer
deposits and debt securities-in-issue for market risks trading and the embedded
derivatives, are carried at fair value. Gains and losses from change in fair
value are recognised through the profit and loss account.
Financial liabilities designated as at fair value through profit or loss
Financial liabilities designated as at fair value through profit or loss,
including own debt securities in issue, are designated as such at inception
usually together with the related assets or derivatives for economic hedge. The
classification criteria of financial liabilities designated as at fair value
through profit or loss are set out above under the caption of 'Financial assets
designated as at fair value through profit or loss'.
Gains and losses from the changes in fair value are recognised as 'Net income
from financial instruments designated as at fair value' through the profit and
loss account.
Deposits, securities in issue and other liabilities
Deposits and debt securities in issue, other than those designated as trading
liabilities or at fair value, and other financial liabilities, are carried at
amortised cost.
Valuation of securities and derivatives
The fair value of financial instruments is based on their quoted market prices
at the balance sheet date without any deduction for estimated future selling
costs. Financial assets are priced at current bid prices, while financial
liabilities are priced at current asking prices.
If a quoted market price is not available on a recognised stock exchange or from
a broker / dealer for non-exchange-traded financial instruments, the fair value
of the instrument is estimated using valuation techniques, including use of
recent arm's length market transactions, reference to the current fair value of
another instrument that is substantially the same, discounted cash flow
techniques, option pricing models or any other valuation technique that provides
a reliable estimate of prices obtained in actual market transactions.
Where discounted cash flow techniques are used, estimated future cash flows are
based on management's best estimates, and the discount rate used is a market
rate at the balance sheet date applicable for an instrument with similar terms
and conditions. Where other pricing models are used, inputs are based on market
data at the balance sheet date. Fair values for unquoted equity investments are
estimated, if possible, using applicable price/earnings ratios for similar
listed companies adjusted to reflect the specific circumstances of the issuer.
When valuing instruments on a model basis using the fair value of underlying
components, management additionally considers the need for adjustments to take
account of counterparty creditworthiness, model uncertainty and the future costs
of servicing the portfolio based on defined policies.
For derivatives where market observable data is not available, the initial
increase in fair value indicated by the valuation model, but based on
unobservable inputs, is not realised immediately in the profit and loss
accounts. This amount is held back and recognised over the life of the
transaction where appropriate, or released to the profit and loss account when
the inputs become observable, or, when the transaction matures or is closed out.
Investments in other unlisted open-ended investment funds are recorded at the
net asset value per share as reported by the managers of such funds.
The change in accounting policies on adoption of HKAS 39 is applied with effect
from 1 January 2005. The opening balance sheet has been restated with net
increases in total assets of HK$1,168 million, retained profits of HK$534
million, equity reserves of HK$532 million, and other liabilities of HK$116
million and reduction in minority interests of HK$14 million. The relevant
financial assets and liabilities are re-classified to suit the new definition
and requirements of the accounting standard and disclosure requirements.
HKAS 40: Investment Property ('HKAS 40')
HKAS 12: Income Taxes - HKAS Interpretation 21
In prior years, investment properties were carried at valuation assessed by
professional valuers on the basis of open market value. Surpluses arising on
revaluation on a portfolio basis were credited to the investment properties
revaluation reserve. Deficits arising on revaluation on a portfolio basis were
firstly set off against any previous revaluation surpluses and thereafter taken
to the profit and loss account. No deferred tax was provided on revaluation
surplus.
On adoption of HKAS 40, investment properties are carried at fair value with the
changes in fair value reported directly in the profit and loss account. Deferred
tax is provided on revaluation surplus of investment properties in accordance
with HKAS Int 21 on HKAS 12.
The change in accounting policy was reflected by way of prior year adjustment,
and as permitted by HKAS 40, no restatement of comparative figures of 2004 was
made. At 31 December 2004, the balance of investment revaluation surplus
reserves of HK$3,283 million, after deducting deferred tax of HK$574 million,
was transferred to retained profit. Revaluation gain for the first half of 2005
was HK$729 million and the related deferred tax amounted to HK$127 million.
2. Restatement of profit and loss accounts and balance sheets
The following are shown as exhibits to the Financial Review section of this news
release:
- the profit and loss accounts for the first and second halves of 2004 and the
balance sheets at 30 June 2004 and 31 December 2004 as previously reported and
as restated showing the effects of the adoption of the aforesaid new and revised
HKFRSs and Interpretations (except HKAS 39 and HKFRS 4) on the individual
account items - Appendices 1 to 4.
- restatement of the opening balance sheet at 1 January 2005 showing the effects
of the adoption of HKAS 39 and HKFRS 4 - Appendix 5.
3. Comparative figures
Certain comparative figures have been reclassified to conform with current
period's presentation.
4. Property revaluation
A revaluation of the group's premises and investment properties was performed in
June 2005 to reflect property market movements in the first half of 2005. The
valuation was conducted by DTZ Debenham Tie Leung Limited, an independent
professional valuer, and carried out by qualified persons who are members of the
Hong Kong Institute of Surveyors. The basis of the valuation of premises and
investment properties was open market value. The revaluation surplus for bank
premises amounted to HK$918 million of which HK$148 million was a reversal of
revaluation deficits previously charged to the profit and loss account. The
balance of HK$770 million was credited to the premises revaluation reserve.
Revaluation gains on investment properties of HK$729 million were recognised
through the profit and loss account on adoption of HKAS 40. The related deferred
tax provision of bank premises and investment properties were HK$160 million and
HK$127 million respectively.
5. Market risk
Market risk is the risk that foreign exchange rates, interest rates or equity
and commodity prices will move and result in profits or losses to the group. The
group's market risk arises from customer-related business and from position
taking.
Market risk is managed within risk limits approved by the Board of Directors.
Risk limits are set by product and risk type with market liquidity being a
principal factor in determining the level of limits set. Limits are set using a
combination of risk measurement techniques, including position limits,
sensitivity limits, as well as value at risk (VAR) limits at a portfolio level.
The group adopts the risk management policies and risk measurement techniques
developed by the HSBC Group. The daily risk monitoring process measures actual
risk exposures against approved limits and triggers specific actions to ensure
overall market risk is managed within an acceptable level.
VAR is a technique which estimates the potential losses that could occur on risk
positions taken due to movements in market rates and prices over a specified
time horizon and to a given level of confidence. In line with the HSBC Group,
the bank refined its basis of calculating VAR from one predominantly based on
variance/co-variance ('VCV') to one predominantly based on historical simulation
('HS') effective 3 May 2005. This latter calculation was introduced because it
better captures the non-linear characteristics of certain market risk positions.
HS uses scenarios derived from historical market rates, and takes account of the
relationships between different markets and rates, for example, interest rates
and foreign exchange rates. Movements in market prices are calculated by
reference to market data from the last two years. Aggregation of VAR from
different risk types is based upon the assumption of independence between risk
types. In recognition of the inherent limitations of VAR methodology, stress
testing is performed to assess the impact of extreme events on market risk
exposures.
The group has obtained approval from the Hong Kong Monetary Authority (HKMA) to
change the VAR model from VCV to HS for calculating market risk in capital
adequacy reporting and the HKMA has expressed itself satisfied with the group's
market risk management process.
The group's VAR for all interest rate risk and foreign exchange risk positions
and on individual risk portfolios during the first halves of 2005 and 2004 are
shown in the tables below. The VAR figures for the first half of 2005 are based
on four months' VCV and two months' HS.
VAR
Minimum Maximum Average
during during for
the the the
Figures in HK$m At 30Jun05 period period period
VAR for all interest rate risk
and foreign exchange risk 614 389 836 647
VAR for foreign exchange
risk (trading) 7 1 10 4
VAR for interest rate risk
- trading 4 4 67 19
- banking 613 387 825 635
Minimum Maximum Average
during during for
the the the
Figures in HK$m At 30Jun04 period period period
VAR for all interest rate risk
and foreign exchange risk 349 250 607 387
VAR for foreign exchange
risk (trading) 37 35 58 43
VAR for interest rate risk
- trading 4 1 8 4
- banking 348 245 605 386
The average daily revenue earned from market risk-related treasury activities
for the first half of 2005 was HK$7 million (HK$10 million for the first half of
2004). The standard deviation of these daily revenues was HK$5 million (HK$5
million for the first half of 2004). An analysis of the frequency distribution
of daily revenues shows that out of 121 trading days in the first half of 2005,
losses were recorded on six days and the maximum daily loss was HK$4 million.
The most frequent result was a daily revenue of between HK$4 million and HK$8
million, with 46 occurrences. The highest daily revenue was HK$23 million.
The group's foreign exchange exposures mainly comprise foreign exchange dealing
by Treasury and currency exposures originated by its banking business. The
latter are transferred to Treasury where they are centrally managed within
foreign exchange position limits approved by the Board of Directors. The average
one-day foreign exchange profit for the first half of 2005 was HK$2 million
(HK$4 million for the first half of 2004).
Interest rate risk, which arises in both Treasury trading and non-trading
portfolios and the banking books, is centrally managed by Treasury under limits
approved by the Board of Directors. The average daily revenue earned from
Treasury-related interest rate activities for the first half of 2005 was HK$5
million (HK$6 million for the first half of 2004).
Structural foreign exchange positions arising from capital investment in
subsidiaries and branches outside Hong Kong, mainly in US dollar and renminbi as
set out in Note 6, are managed by the Asset and Liability Management Committee.
6. Foreign currency positions
Foreign currency exposures include those arising from dealing, non-dealing and
structural positions. At 30 June 2005, the US dollar (US$) was the only currency
in which the group had a non-structural foreign currency position which exceeded
10 per cent of the total net position in all foreign currencies.
Figures in HK$m At 30Jun05 At 30Jun04 At 31Dec04
US$ RMB US$ RMB US$ RMB
Non-structural position
Spot assets 188,701 4,665 166,456 1,534 173,071 2,664
Spot liabilities (177,851) (4,526) (161,751) (1,415) (171,698) (2,400)
Forward purchases 61,568 384 41,452 836 68,726 207
Forward sales (71,173) (380) (34,390) (835) (69,795) (192)
Net options positions (4) - (2) - (37) -
Net long non-structural
position 1,241 143 11,765 120 267 279
At 30 June 2005, the group's major structural foreign currency positions were US
dollar and renminbi.
At 30Jun05 At 30Jun04 At 31Dec04
% of % of % of
total net total net total net
structural structural structural
HK$m position HK$m position HK$m position
Structural position
US dollar 1,037 33.0 852 29.7 850 28.8
Renminbi 1,997 63.6 1,910 66.6 1,998 67.6
7. Material related-party transactions
(a) Immediate holding company and fellow subsidiary companies
During the first half of 2005, the group entered into transactions with its
immediate holding company and fellow subsidiary companies in the ordinary course
of its interbank activities including the acceptance and placement of interbank
deposits, correspondent banking transactions and off-balance-sheet transactions.
The activities were priced at the relevant market rates at the time of the
transactions. The group participated, in its ordinary course of business, in
certain structured finance deals arranged by its immediate holding company.
The group used the information technology of, and shared an automated teller
machine network with, its immediate holding company, and used certain processing
services of a fellow subsidiary on a cost recovery basis. The group also
maintained a staff retirement benefit scheme for which a fellow subsidiary
company acted as insurer and administrator and the bank acted as agent for the
marketing of Mandatory Provident Fund products and the distribution of retail
investment funds for two fellow subsidiary companies. The premiums, commissions
and other fees on these transactions are determined on an 'arm's length' basis.
In the normal course of business, the immediate holding company acted as lead
manager and bookrunner for the bank in an offering of subordinated notes. The
fees paid on this transaction were in line with remuneration for similar
transactions in the market.
The aggregate amount of income and expenses arising from these transactions
during the period, the balances of amounts due to and from the relevant related
parties, and the total contract sum of off-balance-sheet transactions at
period-end are as follows:
Income and expenses for the period
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30Jun05 30Jun04 31Dec04
Interest income 76 72 56
Interest expenses 130 22 69
Other operating income 58 92 34
Operating expenses 314 300 357
Balances at period-end
Figures in HK$m At 30Jun05 At 30Jun04 At 31Dec04
Total amount due from 7,301 6,615 5,595
Total amount due to 10,852 7,533 3,931
Interest rate and exchange rate contracts
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
30 June 2005 47,428 448 90
31 December 2004 34,622 485 97
30 June 2004 44,887 544 109
(b) Associated companies
The group maintained an interest-free shareholders' loan to an associated
company. The balance at 30 June 2005 was HK$233 million (HK$233 million at 30
June 2004 and HK$233 million at 31 December 2004).
(c) Ultimate holding company
For the first half of 2005, no transactions were conducted with the bank's
ultimate holding company (same as 2004).
(d) Key management personnel
For the first half of 2005, no material transaction was conducted with key
management personnel of the group and its holding companies and parties related
to them (same as 2004).
8. Statutory accounts
The information in this news release does not constitute statutory accounts.
The statutory accounts for the year ended 31 December 2004 have been delivered
to the Registrar of Companies and the Hong Kong Monetary Authority. The auditors
expressed an unqualified opinion on those statutory accounts in their report
dated 28 February 2005. The Annual Report and Accounts for the year ended 31
December 2004, which includes the statutory accounts, can be obtained on request
from Legal and Company Secretarial Services Department, Level 10, 83 Des Voeux
Road Central, Hong Kong; or from Hang Seng Bank's website
http://www.hangseng.com.
9. Ultimate holding company
Hang Seng Bank is an indirectly-held, 62.14 per cent-owned subsidiary of HSBC
Holdings plc.
10. Statement of compliance
This news release has been prepared in accordance with Hong Kong Accounting
Standard 34 'Interim Financial Reporting'. It also complies with the module on
'Interim Financial Disclosure by Locally Incorporated Authorised Institutions'
under the Supervisory Policy Manual issued by the Hong Kong Monetary Authority.
11. Register of Shareholders
The Register of Shareholders of Hang Seng Bank will be closed on Wednesday, 24
August 2005, during which no transfer of shares can be registered. In order to
qualify for the second interim dividend, all transfers, accompanied by the
relevant share certificates, must be lodged with the bank's Registrars,
Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17th Floor,
Hopewell Centre, 83 Queen's Road East, Wanchai, Hong Kong, for registration not
later than 4:00 pm on Tuesday, 23 August 2005. The second interim dividend will
be payable on Thursday, 1 September 2005 to shareholders on the Register of
Shareholders of the bank on Wednesday, 24 August 2005.
12. Proposed timetable for the remaining quarterly dividends for 2005
Third Fourth
interim dividend interim dividend
Announcement 7 November 2005 6 March 2006
Book close date 21 December 2005 21 March 2006
Payment date 4 January 2006 31 March 2006
13. News release
Copies of this news release may be obtained from Legal and Company Secretarial
Services Department, Level 10, 83 Des Voeux Road Central, Hong Kong; or from
Hang Seng's website http://www.hangseng.com.
The 2005 Interim Report and Accounts will be available from the same website on
Monday, 1 August 2005 and will also be published on the website of The Stock
Exchange of Hong Kong Limited in due course. Printed copies of the 2005 Interim
Report will be sent to shareholders in late August 2005.
Hang Seng Bank and its subsidiaries Appendix 1
Consolidated Balance Sheet as at 30 June 2004
Figures in HK$m
Effect of
changes in
accounting
As reported policies Restated Reference
Assets Assets
Cash and short-term Cash and short-term HKAS 27
funds 62,376 (163) 62,213 funds
Placings with banks Placings with banks Reclassification
maturing after maturing after
one month 5,315 4 5,319 one month
Certificates Certificates Reclassification
of deposit 31,478 (31,478) - of deposit
Securities held for
dealing purposes 1,180 2,773 3,953 Trading securities HKAS 27
Derivative financial Reclassification
1,209 1,209 instruments
Advances to customers 246,779 (385) 246,394 Advances to customers HKFRS 5
Amounts due from
immediate holding
company and fellow
subsidiary companies 5,777 (5,777) - Reclassification
Long-term investments 120,997 41,121 162,118 Financial investments HKAS 27
Investments in Investments in HKAS-Int 21
associated companies 2,183 (80) 2,103 associated companies
1,146 1,146 Intangible assets Reclassification
Tangible fixed assets 11,056 (5,779) 5,277 Premises and equipment HKAS 17
3,260 3,260 Investment properties Reclassification
Other assets 16,788 (7,222) 9,566 Other assets HKFRS 5, HKAS 19,
HKAS 17 and HKAS 27
503,929 502,558
Liabilities Liabilities
Current, savings and Current, savings and HKAS 27
other deposit accounts 428,370 (9,732) 418,638 other deposit accounts
Deposits from banks 6,082 7,036 13,118 Deposits from banks HKAS 27
2,657 2,657 Trading liabilities Reclassification
Derivatives financial Reclassification
961 961 instruments
9,807 9,807 Certificates of deposit HKAS 27
and other debt
securities in issue
Amounts due to immediate
holding company and
fellow subsidiary
companies 7,530 (7,530) - Reclassification
Other liabilities 19,878 (4,683) 15,195 Other liabilities HKAS 27 and HKFRS 2
2,116 2,116 Deferred tax and current HKAS 19, HKAS 40
tax liabilities HKAS 17 and HKAS-Int 21
461,860 462,492
Capital resources Capital resources
Minority interests 724 - 724 Minority interests
Share capital 9,559 - 9,559 Share capital
Reserves 29,683 (2,003) 27,680 Reserves HKAS 19, HKAS 40, HKAS 17,
HKAS 27, HKFRS 2 and
HKAS-Int 21
Proposed dividends 2,103 - 2,103 Proposed dividends
Shareholders' funds 41,345 39,342 Shareholders' funds
42,069 40,066
503,929 502,558
Hang Seng Bank and its subsidiaries Appendix 2
Consolidated Balance Sheet as at 31 December 2004
Figures in HK$m
Effect of
changes in
accounting
As reported policies Restated Reference
Assets Assets
Cash and short-term Cash and short-term HKAS 27
funds 68,198 (3,353) 64,845 funds
Placings with banks Placings with banks Reclassification
maturing after maturing after
one month 16,231 1,251 17,482 one month
Certificates Certificates Reclassification
of deposit 33,590 (33,590) - of deposit
Securities held for
dealing purposes 1,866 4,134 6,000 Trading securities HKAS 27
Derivative financial Reclassification
1,684 1,684 instruments
Advances to customers 251,873 (320) 251,553 Advances to customers HKFRS 5
Amounts due from
immediate holding
company and fellow
subsidiary companies 4,598 (4,598) - Reclassification
Long-term investments 138,025 44,913 182,938 Financial investments HKAS 27
Investments in Investments in HKAS-Int 21
associated companies 2,397 (98) 2,299 associated companies
1,266 1,266 Intangible assets Reclassification
Tangible fixed assets 11,469 (5,911) 5,558 Premises and equipment HKAS 17
3,383 3,383 Investment properties Reclassification
Other assets 20,378 (10,398) 9,980 Other assets HKFRS 5, HKAS 19,
HKAS 17 and HKAS 27
548,625 546,988
Liabilities Liabilities
Current, savings and Current, savings and HKAS 27
other deposit accounts 463,416 (15,956) 447,460 other deposit accounts
Deposits from banks 8,631 3,303 11,934 Deposits from banks HKAS 27
5,840 5,480 Trading liabilities Reclassification
Derivatives financial Reclassification
1,273 1,273 instruments
Certificates of deposit HKAS 27
and other debt
16,055 16,055 securities in issue
Amounts due to immediate
holding company and
fellow subsidiary
companies 3,928 (3,928) - Reclassification
Other liabilities 28,613 (7,631) 20,982 Other liabilities HKAS 27 and HKFRS 2
1,668 1,668 Deferred tax and current HKAS 19, HKAS 40
tax liabilities HKAS 17 and HKAS-Int 21
504,588 505,212
Capital resources Capital resources
Minority interests 852 - 852 Minority interests
Share capital 9,559 - 9,559 Share capital
Reserves 29,993 (2,261) 27,732 Reserves HKAS 19, HKAS 40, HKAS 17,
HKAS 27, HKFRS 2 and
HKAS-Int 21
Proposed dividends 3,633 - 3,633 Proposed dividends
Shareholders' funds 43,185 40,924 Shareholders' funds
44,037 41,776
548,625 546,988
Hang Seng Bank and its subsidiaries Appendix 3
Consolidated Profit and Loss Account for the period ended 30 June 2004
Figures in HK$m
Effect of
changes in
accounting
As reported policies Restated Reference
Interest income 5,871 4 5,875 Interest income HKAS 27
Interest expenses (1,160) (1,160) Interest expenses
Net interest income 4,711 4 4,715 Net interest income
Fees and commissions
receivable 1,993 (19) 1,974 Fee income HKAS 27
Fees and commissions
payable (170) 17 (153) Fee expense HKAS 27
1,821 Net fee income
Dealing profits 558 - 558 Trading income HKAS 27
- Net income from financial
instruments designated as
at fair value
Net investment income on
assets backing
policy holder
83 83 liabilities Reclassification
Insurance underwriting
profits 617 (617) - Reclassification
Dividend income 76 (28) 48 Dividend income HKAS 27
Net earned insurance Reclassification
1,998 1,998 premiums
Other operating income 288 134 422 Other operating income HKFRS 5 and
reclassification
Operating income 8,073 9,645 Total operating income
Net insurance claims Reclassification
incurred and movement
in policyholder
(1,594) (1,594) liabilities
Net operating income before
loan impairment releases
and other credit risk
8,051 allowances
Loan impairment releases HKFRS 5 and
and other credit risk reclassification
746 746 allowances
8,797 Net operating income
Staff costs (1,037) (19) (1,056) Personnel expenses HKFRS 2
(795) (795) General and administrative Reclassification
expenses
Depreciation (153) 27 (126) Depreciation of business HKAS 17 and
premises and equipment HKAS 38
Amortisation of intangible HKAS 38
(4) (4) assets
(1,981) Total operating expenses
Operating expenses (787) 787
Operating profit before
provisions 6,096
Provisions for bad and
doubtful debts 763 (763)
Operating profit 6,859 6,816 Operating profit
Profit on tangible fixed Profit on disposal of HKAS 27
assets and long-term tangible fixed assets
investments 339 10 349 and financial investments
Net surplus on property Net surplus on property HKAS 17
revaluation 119 (28) 91 revaluation
Share of profits of Share of profits in Reclassification
associated companies 6 (2) 4 associated companies
Profit on ordinary
activities before tax 7,323 7,260 Profit before tax
Tax on profit on ordinary
activities (998) 6 (992) Tax expenses HKAS 17
Profit on ordinary Profit for the period
activities after tax 6,325 6,268
Minority interests (80) (80) Profit attributable to minority
interests
Profit attributable to Profit attributable to
shareholders 6,245 6,188 shareholders
Hang Seng Bank and its subsidiaries Appendix 4
Consolidated Profit and Loss Account for the period ended 31 December 2004
Figures in HK$m
Effect of
changes in
accounting
As reported policies Restated Reference
Interest income 6,600 (3) 6,597 Interest income HKAS 27
Interest expenses (1,621) 4 (1,617) Interest expenses HKAS 27
Net interest income 4,979 4,980 Net interest income
Fees and commissions
receivable 1,756 (1) 1,755 Fee income HKAS 27
Fees and commissions
payable (239) (24) (263) Fee expense HKAS 27
1,492 Net fee income
Dealing profits 467 (1) 466 Trading income HKAS 27
- Net income from financial
instruments designated as
at fair value
Net investment income on
assets backing
policy holder
346 346 liabilities Reclassification
Insurance underwriting
profits 693 (693) - Reclassification
Dividend income 20 7 27 Dividend income HKAS 27
Net earned insurance Reclassification
2,474 2,474 premiums
Other operating income 304 159 463 Other operating income HKFRS 5 and
reclassification
Operating income 7,980 10,248 Total operating income
Net insurance claims Reclassification
incurred and movement
in policyholder
(2,246) (2,246) liabilities
Net operating income before
loan impairment releases
and other credit risk
8,033 allowances
Loan impairment releases HKFRS 5 and
and other credit risk reclassification
31 31 allowances
8,033 Net operating income
Staff costs (1,150) (28) (1,178) Personnel expenses HKFRS 2
(939) (939) General and administrative Reclassification
expenses
Depreciation (164) 34 (130) Depreciation of business HKAS 17 and
premises and equipment HKAS 38
Amortisation of intangible HKAS 38
(4) (4) assets
(2,251) Total operating expenses
Operating expenses (932) 932
Operating profit before
provisions 5,734
Provisions for bad and
doubtful debts 51 (51)
Operating profit 5,785 5,782 Operating profit
Profit on tangible fixed Profit on disposal of HKAS 27
assets and long-term tangible fixed assets
investments 93 - 93 and financial investments
Net surplus on property Net surplus on property HKAS 17
revaluation 29 26 55 revaluation
Share of profits of Share of profits in Reclassification
associated companies 137 (44) 93 associated companies
Profit on ordinary
activities before tax 6,044 6,023 Profit before tax
Tax on profit on ordinary
activities (766) 47 (719) Tax expenses HKAS 17
Profit on ordinary Profit for the period
activities after tax 5,278 5,304
Minority interests (128) (128) Profit attributable to minority
interests
Profit attributable to Profit attributable to
shareholders 5,150 5,176 shareholders
Hang Seng Bank and its subsidiaries Appendix 5
Consolidated Balance Sheet as at 31 December 2004
Figures in HK$m
Effect of
Restated changes in
(HKFRSs accounting
other than policies of Restated
HKFRS 4 HKFRS 4 (Full
and HKAS 39) and HKAS 39 HKFRSs) Reference
Assets Assets
Cash and short-term Cash and short-term
funds 64,845 - 64,845 funds
Placings with banks Placings with banks
maturing after maturing after
one month 17,482 - 17,482 one month
Trading securities 6,000 10,737 16,737 Trading securities HKAS 39
Financial assets Financial assets
designated as at designated as at
fair value through fair value through
profit or loss - 4,292 4,292 profit or loss HKAS 39
Derivatives financial Derivatives financial HKAS 39
instruments 1,684 94 1,778 instruments
Advances to customers 251,553 293 251,846 Advances to customers HKAS 39
Financial investments 182,938 (14,023) 168,915 Financial investments HKAS 39
Investments in Investments in
associated companies 2,299 - 2,299 associated companies
Intangible assets 1,266 - 1,266 Intangible assets
Premises and equipment 5,558 - 5,558 Premises and equipment
Investment properties 3,383 - 3,383 Investment properties HKAS 39 and HKFRS 4
Other assets 9,980 (297) 9,683 Other assets
546,988 548,084
Liabilities Liabilities
Current, savings and Current, savings and HKAS 39
other deposit accounts 447,460 (7,276) 440,184 other deposit accounts
Deposits from banks 11,934 - 11,934 Deposits from banks
Trading liabilities 5,840 10,701 16,541 Trading liabilities HKAS 39
Derivatives financial Derivatives financial HKAS 39
instruments 1,273 977 2,250 instruments
Certificates of deposit Certificates of deposit HKAS 39
and other debt and other debt
securities in issue 16,055 (3,443) 12,612 securities in issue
Liabilities to customers Liabilities to customers HKFRS 4
under investment under investment
contracts - 540 540 contracts
Other liabilities 20,982 (10,317) 10,665 Other liabilities HKAS 39 and HKFRS 4
Liabilities to customers Liabilities to customers HKFRS 4
under insurance under insurance
contracts - 8,656 8,656 contracts
Deferred tax and current Deferred tax and current HKAS 39
tax liabilities 1,668 202 1,870 tax liabilities
505,212 505,252
Capital resources Capital resources
Minority interests 852 (14) 838 Minority interests HKAS 39
Share capital 9,559 - 9,559 Share capital
Reserves 27,732 1,070 28,802 Reserves HKAS 39 and HKFRS 4
Proposed dividends 3,633 - 3,633 Proposed dividends
Shareholders' funds 40,924 41,994 Shareholders'funds
41,776 42,832
546,988 548,084
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HSBC Holdings plc
By:
Name: P A Stafford
Title: Assistant Group Secretary
Date: 1 August 2005